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UK stock market commentary (August 21, 2014): Bulls testing their luck

August 21, 2014, Thursday, 05:39 GMT | 00:39 EST | 10:09 IST | 12:39 SGT
Contributed by Capital Spreads

European equities are set to creep higher despite the negative cues lining up. Hawkish minutes from the BoE and Fed, Ukrainian troops smashing their way into rebel held territory, weak china manufacturing data overnight and expectations of weak PMI data for Europe this morning should have traders on the back foot. However, markets have developed a remarkable ability to shrug off the bad and have needle like focus on the positive, although what that is today no one’s quite sure. If markets manage to finish the day in positive territory then it will be an amazing feat of blind faith or Draghi decides to put his ‘whatever it takes’ words into action at Jackson Hole today.

US stocks continued to climb higher for the third consecutive day on Wednesday with the Dow Jones Industrial average climbing almost 60 points to close at 16,979. Stocks initially fell after the release of the FOMC minutes which showed a growing number of officials considering an increase in interest rates sooner rather than later. The Dow recovered from the initial drop, spurred on by positive earnings data for Home Depot which has been performing with the improving housing market.

The dollar also continued to strengthen today with EUR/USD falling to 1.3250. The dollar is now at 11 month highs versus the euro after the release of surprisingly hawkish FOMC minutes which has many traders banking on a rate hike in the near future. The Euro is continuing to come under pressure with expectations that the European Central Bank will begin to loosen policy in the near futures.

West Texas Intermediate Oil climbed for the first time this week after a positive API data reported that supplies fell by 1.4 million which was much greater than most analysts expected. On the New York Mercantile Exchange, WTI October tacked on 0.74%, or 69 cents, to trade at $93.55 a barrel during US morning hours.

Spot gold continued to fall further on Wednesday dropping almost 0.4%. The precious metal fell over $5 per oz with the FOMC minutes revealing a general consensus among policy makers that the labour market is stable enough to consider an rise in interest rates in the near future. Traders will now be keeping a close eye on Thursdays initial jobless claims and manufacturing data for the US and Euro zone.