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Reports UK

UK stock market commentary (July 10, 2014): Central Banks compete with drying paint for interest

July 10, 2014, Thursday, 06:51 GMT | 02:51 EST | 10:21 IST | 12:51 SGT
Contributed by Capital Spreads

European equities are set to open flat as the overnight FOMC minutes failed to rock any boats. A little tweaking to the end of quantitative easing and a reiteration of the open ended timescale for monetary tightening didn’t give anything new for traders to pounce on. Similarly, the BoE is set to be equally static with no change on rates and asset purchases so attention is already shifting out to the minutes two weeks away.

Although speculation seems to have focussed solely on the possibility of rate hikes being brought forward, the economic back drop isn’t tallying up quite so clearly. Despite Nemat Shafik and currency traders doing their best to push up the pound just in time for their summer holidays, following the drop in inflation, the cooling in the Services PMI and Mark Carneys flip flopping recently, you should probably get down to the bureau de change now and lock in the rates before the BoE kicks the issue of interest rate hikes into the long grass like the Fed.

Fresh optimism regarding corporate earnings season which kicked off yesterday with stronger than estimated results for Alcoa, allowed the Dow Jones to rebound 58 points to 16,992. It even overshadowed warnings by the Fed that investors could become too complacent about the economic outlook and also dissuading excessive risk taking.

The Federal Reserve’s last meeting minutes did not clarify the timing of the interest rate hike announced for the next year. That upset currency investors who sold the greenback heading into the euro instead. As a result, the EUR/USD pair rebounded 30 pips to 1.36401 with concerns of a hawkish Fed keen to rebalance the rhetoric, being now priced out.

Its’ driving season but the consumption in the world’s biggest oil user failed to keep up which in turn pushed gasoline inventories higher as indicated by the weekly stockpiles report. Consequently, the WTI crude prices posted a sharp selloff yesterday, losing $1.53 to $101.93 with the geopolitical tension also becoming less of a concern.

Worries of a return to excessive risk taking era as shown in the FOMC meeting minutes has undoubtedly reignited demand for a safe haven. Good news for gold as usual with its price rallying $7.2 to $1326.9 and it appears still going strong this early morning, rising above the $1330.00 mark.