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Reports UK

UK stock market commentary (July 22, 2014): Tough talk on Russia but now you have to walk the walk

July 22, 2014, Tuesday, 05:20 GMT | 00:20 EST | 09:50 IST | 12:20 SGT
Contributed by Capital Spreads

European equities are set to perk up on the open on positive steps in the Ukraine. Co-operative steps from the pro Russian rebels have soothed traders fears that east-west relations are about to resemble the cold war era; but attention and risk now moves to the euro zone foreign ministers meeting today. Despite tough rhetoric from the US and UK about escalating sanctions on Russia, and apparent agreement from France and Germany, suspicion is that there will be a reiteration of the tier 2 sanctions and a ‘warning’ that Russia is only a step away from tier 3’. However, if they do decide to boot Russia out into economic isolation then expect sentiment to dive as traders prepare for what George Osborne termed an ‘economic hit’ and Russia’s natural retaliatory moves.

Worries the downing of a Malaysian Airlines passenger jet in Ukraine could trigger even deeper sanctions against Russia put investors off. In addition, the reluctant Europeans might also have to step up and severe some of the ties with Moscow further affecting global trade. Consequently we had a risk off session with the Dow Jones losing 50 points to 17,041.

This side of the Atlantic, despite all that rhetoric in the media is yet unclear if they mean business in increasing pressure on Russia. The European Union officials are due to meet later on in Brussels regarding the situation in Eastern Ukraine but reaching a consensus is anybody’s guess. Cautious investors remained on the sidelines with the shared currency closing just 5 pips down against the greenback at 1.3523.

Strong refinery demand in the US pushed crude oil prices higher in yesterday’s trading session as stockpiles are expected to shrink. That seemed to be the best support in the last few days, overshadowing the geopolitical concerns. As such the WTI crude prices rallied $1.01 to $102.83 a barrel and still on the offence this early morning.

International pressure on President Vladimir Putin and further tensions in Gaza supported gold prices on heightened demand for safe haven assets. The precious metal climbed sharply during the morning session yesterday but a pull back in the afternoon cut the gains to just $1.5 to $1310.3.