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Reports UK

UK stock market commentary (August 18, 2014): Flames of Ukraine conflict still smouldering

August 18, 2014, Monday, 05:27 GMT | 00:27 EST | 08:57 IST | 11:27 SGT
Contributed by Capital Spreads

European equities are set perk up on the open as tension in Ukraine continues to subside. Confirmation from the Ukrainian President Petro Poroshenko that the Russian military vehicles that had crossed the border had been destroyed sent markets into a tail spin on Friday. However, after the initial knee jerk reaction, markets had begun to pare back the losses as traders shrugged off its impact but also questioned its legitimacy. Also, a bit of optimism is also coming from crisis talks in Berlin between German, French, Ukrainian and Russian Foreign Ministers due to the fact that the talks were held at all. However, with the Russian ‘aid’ convoy now at the border, the situation still remains a geopolitical tinder box just waiting for the smallest ember of trouble to set things alight so despite the positive start, caution remains high.

The markets seemed to be off to a good start on Friday, with equities showing slight gains and traders getting ready for the weekend. But the markets of late have resembled a dry forest, never more than a spark away from a forest fire. That spark came on Friday in the form of a report from a Ukrainian military leader saying his forces had attacked a column of Russian armoured trucks that crossed the border. Within minutes the markets were falling sharply and the flames spreading. After a drop of almost 200 points in Dow the fire fighting bulls came to the rescue with air tankers to put out the flames. The markets recomposed themselves and regained some lost ground, but the damage was done on the close with the Dow closing down over 100 points.

Despite the drama on Friday and rising Geopolitical tension in Ukraine the EUR/USD rose and finished we week close to the 1.3400 mark. The rise was helped by the plethora of data that traders tried to get their heads around on Friday which saw the release of US industrial output for July, Michigan University consumer sentiment survey for August and business sentiment among New York State manufacturers for August. Focus for the coming week now shifts to the Federal Reserve with the FOMC minutes due on Wednesday.

Predictably enough West Texas Intermediate Oil climbed on Friday after Ukraine announced they hit Russian armoured forces. Oil prices regained strength, utilizing fears that a potentially escalation could see one of the world top exporters of oil and gas could face disruptions in crude shipments out of the country. WTI for September delivery rose 1.9% to settle at US$97.35 a barrel on the New York Mercantile Exchange.

After a slow week for Gold traders gold prices fell on Friday, finally breaking its tight range for the week. Gold came under pressure from US economic data with the market showing less risk aversion. However the precious metal recovered from its session low thanks to escalation of geopolitical tensions in Ukraine. Focus for gold now shifts to the Federal Reserve with Wednesdays FOMC minutes likely to be the key factor behind trader’s decision making in the coming week.