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UK stock market commentary (August 07, 2014): Sell-off on pause for central banks

August 7, 2014, Thursday, 07:18 GMT | 02:18 EST | 11:48 IST | 14:18 SGT
Contributed by Capital Spreads

European equities are set to open on a dour note as the geopolitical tension surrounding Russia and the Ukraine still looks explosive. However, the selloff looks to be on pause for a moment as attention focuses on to central bank meetings. The BoE is expected to keep record low rates on hold but all the speculation is on whether someone will finally break ranks on the MPC and vote for a rate hike?

The ECB is also likely to hold fire whilst it asses the impact of Junes rate cut, negative overnight deposits rate and the rolling out of another loan program. The press conference is where all the action happens though. With recent economic data showing Germany, the only thing propping up the whole euro zone, starting to wobble and the rest of the members continuing to form by doing poorly, will Draghi be able to say anything that inspires any confidence in the euro zone economy?

The Dow Jones gained a mere 10 points to 16,445 yesterday as investors stopped for a breather after last two weeks’ violent sell off. The interest will probably shift on the other side of the Atlantic later on today due to the ECB interest rate meeting.

Amid Italy’s slip into recession, German factory orders dropped most since 2011, raising fresh concerns over the euro area’s economic health. So, ahead the ECB’s interest rate meeting market participants were reluctant to commit too much keeping the shared currency largely in check around 1.3380.

The WTI crude prices went south again losing 75 cents to $96.87 a barrel despite a bigger than expected draw for weekly inventories as indicated by the US Department of Energy. After signs the US economy might struggle it was Europe’s turn to show its weak hand and that does not bode well for energy demand going forward.

Eventually, the geopolitical card had its day as escalating conflicts in the Middle East and Ukraine spurred renewed demand for safe haven assets. As such, gold was back making headlines with its price gaining $17.8 to $1305.2. The next question is, can it hold above $1300.00 mark?