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Reports UK

UK stock market commentary (July 11, 2014): Not much chance of a summer lull this year

July 11, 2014, Friday, 05:21 GMT | 00:21 EST | 08:51 IST | 11:21 SGT
Contributed by Capital Spreads

European equities are set to limp higher on the open but sentiment still remains weak. It’s been a bad weak for the bulls already but with the euro zone crisis making an unwelcome come back yesterday, traders are getting concerned that the bearish flood gates are starting to creak. Since the depths of the euro zone crisis markets have recovered considerably but recent economic data has consistently painted an underwhelming picture for Europe and the dark cloud of deflation doesn’t seem to be dissipating regardless of what the ECB desperately attempts. Like most horror film sequels, expect the story line to follow the same plot but with slightly different locations and characters as ‘Euro Zone Crisis 2’ could be coming soon to a cinema screen near you in summer 2014..

Renewed debt troubles in Portugal reignited concerns about the health of European financial system. These contagion fears easily spilled over across the Atlantic sending the US equities sharply down as investors were in no mood to ask questions first. It only added to the latest speculation that stocks have gone up too fast and that a severe pullback is overdue, sending the Dow Jones 73 ticks down to 16,914.

The Portuguese bank Espirito Santo was unable to make short term debt payments exposing some of the challenges giving the ECB plenty of headaches. It showed that a bank in a so called peripheral country can still pose a systemic risk. However, interesting enough the EUR/USD lost just 32 pips to 1.3608 in the morning session while the indices were plunging sharply.

The WTI crude prices recovered 94 cents to $102.87 after the previous day’s steep selloff. Bargain hunting could have been a supportive factor but also growing speculation that a resilient US economy will boost demand for fuel. During the afternoon session there were views expressed that earlier decline due to Portugal financial stress could be overdone.

Turmoil in Portugal undoubtedly spurred safe haven demand which in turn supported gold prices. A slump in equities exacerbated the move with the precious metal gaining $11.00 for the day to $1335.4, a 16 week high.