Eurogroup meeting leaves markets perplexed

Heading into the close, the FTSE 100 is still hanging on to gains, even as European markets struggle under a cloud of Greek woes. 

London skyline
Source: Bloomberg

Eurogroup meeting shocks 

Markets around the world are still struggling to puzzle out last night’s Eurogroup meeting, which somehow managed to fall below even the low standards that we’ve come to expect from this kind of single currency chit-chat. Last week’s meeting failed to issue a single communiqué, but yesterday’s could not even achieve this, breaking up without even going the full distance.

Understandably this has generated much skittishness, although the thought of European Central Bank quantitative easing coming in March means that even now there are still dip buyers active. If they can weather the storms that loom in coming weeks and make it safely to March, their optimism should prove justified.

It is good to see a healthy selection of gainers at the top of the London market today, after weeks in which the FTSE 100 has stood or fallen on the performance of miners and energy stocks. Oil’s tumble back this afternoon has however been a curse for Tullow Oil, which has dropped back today after testing the 420p area four times so far this month. The post-results bounce seems to have run its course.

Bigger oil groups like BP and Shell offer a greater margin of safety than exploration plays like Tullow, and this fact will continue to reassert itself now that results excitement has died away.

Dissapointment for US investors

US investors do not seem to have been particularly cheered by their long holiday, and doubtless most of them kept one eye on the news during their day off to see that the good news of last week surrounding Greece and the Ukraine was disappearing fast. Thus the S&P 500 has little reason to push on through Friday’s all time high, and the Dow Jones continues to flirt with 18,000 with little desire to go much beyond it.

Ukraine hopes were always rather over-optimistic, given the intractable nature of the conflict, while it was almost a given that the eurozone situation would be fraught with difficulty. The removal of these two problems would do much to restore risk appetite, especially now earnings season has pottered to its usual quiet end.

Silver could test $15.50

Silver is in full retreat today, dropping over 5% and hitting its lowest level in over a month. The metal, always the epitome of volatility, has seen heavy selling thanks to suggestions that the Chinese New Year may see much weaker demand than previously expected. Just days ago, the metal had seemed primed for a bounce after a steep decline, as technical buyers woke up to the presence of a rising trend off the December lows. With that rationale defeated, we look towards a test of the $15.50 lows from early January.

US light crude has run out of momentum around the $53 mark yet again, while the Brent-WTI spread widens once more. With supply data looming, a lot of latecomers to the bounce in crude will be caught out, as the market begins to fear that the rally is not built on solid foundations.

Low inflation problems hit economy 

As UK inflation hits a record low, GBP/USD finds itself in an uncomfortable position, with less than a day until Bank of England minutes are published. At present there is a surfeit of doves on the Monetary Policy Committee, but it seems hard to imagine that a month will have changed opinions particularly.

Overall the economy continues to grapple with the problems of low inflation, leaving Threadneedle Street to sit on its hands for the time being. 

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