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UK stock market commentary (August 08, 2014): It’s all about the geopolitics

August 8, 2014, Friday, 05:29 GMT | 00:29 EST | 08:59 IST | 11:29 SGT
Contributed by Capital Spreads

European equities are set to slump on the open as geopolitical tensions ratchet up once again. Overnight reports that President Obama has authorised military strikes against ISIS in Iraq has sent US index futures and Asian markets plunging. The geopolitical landscape already looks explosive with tensions rising in Ukraine and with Russia but the appearance of another flash point and the possibility of being drawn into something deeper in Iraq is set to drag sentiment even lower.

For once Ukraine’s escalating conflict overshadowed the better than expected US jobless claims figures which normally would have acted as good support for equities. That sent the Dow Jones 66 points lower to 16,378 as corporate earnings were outmuscled by geopolitical fear as well. Overnight President Obama announced he authorised airstrikes in Iraq which sent the markets plunging and the Dow is already over 70 points down.

President Mario Draghi signalled the European Central Bank’ monetary policy will diverge from the Fed’s for a prolonged period thus acknowledging the shared currency’s weakness. The result was resumption in the euro’s slump versus the greenback reaching 9 months low and closing 21 pips down at 1.3363.

The energy complex discarded a stronger US dollar yesterday with the WTI rallying 74 cents to $97.62 as geopolitical risk finally took centre stage. And with US President Obama authorising air strikes in Iraq, the support only got stronger in overnight trading. On top of that there’s increasing speculation that Vladimir Putin could invade Ukraine which also keeps energy investors nervous.

It appears that all is coming into place for gold as violence in the Middle East and Ukraine cannot be ignored any longer by the markets. The precious metal continued its advance yesterday gaining $7.8 to $1312.7 largely on renewed demand for alternative assets, boosted also by a slump in equities