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Reports UK

UK stock market commentary (August 29, 2014): War bad, incursion acceptable

August 29, 2014, Friday, 05:27 GMT | 00:27 EST | 08:57 IST | 11:27 SGT
Contributed by Capital Spreads

European equities are set to open mixed as traders struggle to asses the flare up in Ukraine. It has been blatant to see that the Russian military has been crossing into Ukraine despite the comedic rebuttals from the Kremlin of lost paratroopers and vacationing Russian regulars looking to unwind with a bit of combat.

Although markets are trading a touch weaker over the last couple of sessions, they aren’t reacting as though this was a full on territorial invasion and as long as the media keeps portraying it as an ‘incursion’ traders may be able to shrug off the situation in Ukraine as a limited, contained conflict. However, Russia has persistently and consistently escalated the conflict but with no clear end objective. Traders will have to mull how far into Ukraine Russia is intending to incur and if that point is beyond the West/NATOS’s tolerance.

Initially the US stocks plunged on the back of news that violence in Ukraine escalated with the opening of a third front in the fighting between government forces and pro Russian rebels. Later on US retail earning also disappointed the global markets accelerating the slump. However, the GDP data was better than expected reversing the daily trend towards the close. So the Dow Jones ended rather flat around 17,114.

Confidence in the euro area tumbled yesterday as economic data seemed to confirm Mario Draghi’s warning, a drop in consumer prices and to address that more stimulus is needed. Even the German unemployment figures disappointed casting further doubts over the European economic health. Consequently, the euro resumed its decline against the dollar, losing 11 pips down to 1.3182.

Energy investors were cheered by the stronger than anticipated expansion for the US economy and expected oil demand to stay strong matching the oversupply seen lately. As such they pushed the WTI crude prices 85 cents higher to $94.59.

Russian troops entering Ukraine sent investors in search for a safe haven and in turn offered support to gold prices. Nonetheless, a rally in US equities clawed back some of the early gains but still the precious metal managed to hold its ground ending the session $6.5 higher at $1289. Can we expect yet another challenge at $1300.00 mark in the following days?