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Reports UK

UK stock market commentary (August 28, 2014): Draghi and Putin; forget what they say and concentrate on what they do

August 28, 2014, Thursday, 05:56 GMT | 00:56 EST | 09:26 IST | 11:56 SGT
Contributed by Capital Spreads

European equities are set to edge lower as concern brews that traders have gotten ahead of the curve on ECB stimulus that and fighting in Ukraine flares up again. Comments from German Finance Minister Scheuble that Draghis speech had been misread by the market and rumours that action was off the cards bar a disastrous August inflation reading stirred fears that Draghi’s Jackson Hole speech was another example of his verbal easing trick. Markets are wise to that one and it won’t be so easy to just dangle the carrot of ‘what ever it takes’ in front of markets to jump start the European economy.

Also keeping recent bullish sentiment in check is the blatant Russian led offensive in Ukraine. With Russian tanks, artillery and infantry flooding across the border, the Ukrainian army have been put on the back foot. Also, with Russian para troopers supposedly wandering 20km across the border by accident, it’s almost as though Putin cannot be bothered to hide his intentions anymore.

After reaching all times high the Dow Jones stopped for a breather. Some investors were quick to take some profits off table pushing the US index 12 points lower to 17,112. However, the fact that any intraday pullback is followed by a rally back towards the close rendering any losses minimal shows that for now the bulls remain in control.

We saw bargain hunters coming into the shared currency yesterday to take advantage of what they perceive as opportunities as the EUR/USD pair gained back 24 pips to 1.3192. It’s true the speculation about an imminent European quantitative easing is cooling, but it takes a lot of courage to bet against the greenback at the moment especially versus the euro.

Ahead of the Labour Day holiday in the US which marks the end of the driving season’s peak, gasoline production increased. Energy investors speculated that demand will slump. However, the WTI crude prices lost a mere 16 cents to $93.71 a barrel despite a lower dollar which usually acts as good support.

Amid a weaker dollar and increased tensions in Ukraine, gold prices climbed again gaining $1.9 to $1283.6. On one hand geopolitical tensions provide good support for the precious metal, on the other hand a stronger dollar and a potential for rate hikes is still putting enough downside pressure.