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Reports UK

UK stock market commentary (July 03, 2014): Not a day for the faint of heart

July 3, 2014, Thursday, 05:27 GMT | 00:27 EST | 08:57 IST | 11:27 SGT
Contributed by Capital Spreads

European equities are set to open flat ahead of a big day on the news front. Although the UK will get an eye into the engine of its economy through the Services PMI, it will be the double header of the ECB press conference and Non Farm Payrolls which markets will be eagerly anticipating.

Despite Draghi’s extraordinary measures announced at the last meeting, the light under the euro zone economy is still to be lit. Although it’s early days yet, the run of sub par economic data out of Germany, Europe’s buoyancy aid, has traders concerned that even with the latest measure it won’t be enough. No new action is expected, so for the bulls to really get animated they will need to hear something along the lines that the threat of deflation has gotten closer and/or that the threshold for quantitative easing has been lowered.

Expectations around Non Farms are a mixed bag. The good ADP figure earlier in the week saw US bonds take a beating on the expectations that higher rates will come sooner rather than later but equities lapped up the improving economy story. If today’s figure shows a similar above expectation number, one would assume that they’d rally on the implications for the economy and shrug off the monetary tightening implications again. However, if one thing has characterised the markets of the last few years it has been its bipolar nature, flipping between ‘good news is bad news’ and ‘good news is good news’ with frustrating regularity.

In a risk on day, the Dow Jones gained another 13 points in its quest to reach 17,000 for the first time ever helped by transportation and industrial shares (the Dow Theory). It stopped just short of that target, at 16.976 with the advance being supported by the pickup in factory output ahead of the earnings season due to start soon.

Markets don’t expect the European Central Bank to add stimulus at its meeting later today, taking a break after unveiling its plan to boost growth on June 5. In reaction, the shared currency already started to give back some of the recent gains versus the greenback, yesterday losing another 20 pips to closed at 1.3659.

In civil war torn Libya, rebels planned to reopen two export terminals thus increasing supplies in a market already awash with crude. The effect was a sharp drop in the WTI crude prices, 97 cents to $104.23 a barrel supported by a strengthening dollar and discarding a bigger than expected draw in stockpiles as shown by the US weekly inventories report.

As the Fed Chair Janet Yellen reaffirmed her stance to keep interest rates at record low levels investors were incentivised to look for alternative assets. Gold is usually one of the choices in this almost no interest environment with its prices gaining back $1 to $1327.7