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Reports UK

UK stock market commentary (August 20, 2014): Reading central bankers tea leaves

August 20, 2014, Wednesday, 06:17 GMT | 01:17 EST | 10:47 IST | 13:17 SGT
Contributed by Capital Spreads

European equities are set to ease back a little on the open as traders pause ahead of central bank meeting minutes. With geopolitics shrugged off it’s time to get back to trying to diving what is going on in the heads of central bankers. Carney has been characteristically flip flopping again lately, coming out all dovish in the quarterly inflation report then suggesting that rates could be hiked before real wages catch up in the Sunday papers. To add more confusion into the debate was yesterdays slip in inflation, with traders now none the wiser so expect them to take their cue from any slight bias in the minutes or if there’s a dissenter or two on the vote. With the FOMC minutes out after the close also, despite the bullish start, traders may keep the buying urge to splurge until tomorrow when they have been reassured by Yellen that US interest rates are going nowhere for the foreseeable future.

US stocks continued to gain momentum on Tuesday, reacting positively to corporate earnings and news on home building. The bulls found solace in a bounce in home construction last month coupled with solid consumer inflation figures with the Dow Jones Industrial Average rising 80 points to close at 16919. With the FOMC minutes due on Wednesday many investors question how long interest rates can stay at their current record low levels.

Much like Monday the Euro Dollar continued to fall with the dollar further strengthening. The positive US housing data helped support expectations that a hike in interest rates could be on the horizon for the Federal Reserve however with the FOMC minutes being released tomorrow anything is still possible. Euro Dollar fell over 0.3% on Tuesday to 1.3319 with the Euro coming under pressure with expectations that the European Central Bank will begin to loosen policy.

It’s been a rough week for West Texas Intermediate Oil with futures continuing to decline on Tuesday. The market has been suffering from high supply and the fall was furthered by expectations of a third consecutive increase in oil supplies and falling inventory levels across the board. WTI fell over 2% to close at $94.48 a barrel, its lowest level in over 8 months

Gold continues its struggle this week with the precious metal falling further on Tuesday, staying below the $1300 per ounce level. Falling prices were aided by rising equities with the US recovery seeming to gain momentum after positive US housing data. Gold’s saving grace this year seems to have come from geopolitical tensions in the Ukraine and the Middle East, helping to support the precious metal.

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