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Reports UK

UK stock market commentary (July 08, 2014): Bulls need coaxing higher

July 8, 2014, Tuesday, 07:08 GMT | 02:08 EST | 11:38 IST | 14:08 SGT
Contributed by Capital Spreads

European equities are set to open flat as traders wait on decisive event risks. The rally seems to have paused and traders are reluctant to plough through the over head resistance levels without a compelling fundamental story. Although a few bearish stories from Christine Lagarde and Germany have been chipping away at confidence, the bulls are still holding firm on the hopes that the US earnings season can provide the required catalyst. This week’s FOMC meeting minutes are also expected to provide some bullish cues. Despite a lot of analysts bringing forward their expectations for a rate hike in the US following the decent Non Farms figure on Thursday, the minutes are expected to echo Yellen’s very dovish comments at the IMF last Wednesday which saw US indices pop to new all time highs.

Following better than expected US economic data seen lately, there is now heightened expectation that interest rates may be raised sooner than initially anticipated. That sparked yesterday a selloff in the Dow Jones which pushed its price 25 points down to 17,027. On top of that the latest rally to record highs means valuations are pretty stretched and if not accompanied by revenue growth could bring a price correction.

The shared currency gained back 8 pips versus the greenback to 1.3604 possibly on bargain hunting after last week’s sharp decline. Investors’ confidence in Europe as measured by Sentix was much stronger than estimated and that could have also helped.

The WTI crude prices continued their slump yesterday, closing 32 cents down at $103.40 a barrel despite forecast for a rise in demand. Libya has stated its readiness to immediate export 7.5 million barrels of crude while the Iraqi’s picture is also softening. And the overall perception the US dollar is on the rise does not help energy prices either.

As one would expect, speculations for an early hike in interest rates certainly does not bode well for gold. Indeed, the precious metal saw its price drop $1.3 to $1320.0 yesterday but possibly there is still enough support to oppose bigger corrections ahead of the FOMC minutes.

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