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Reports UK

UK stock market commentary (July 29, 2014): Is the West about to wake the Russian Bear?

July 29, 2014, Tuesday, 09:29 GMT | 04:29 EST | 12:59 IST | 15:29 SGT
Contributed by Capital Spreads

European equities are set to edge higher on the open following an afternoon rebound in the US and overnight gains in Asia. Despite the positive start, markets aren’t expected to make much headway as traders sit on the sidelines ahead of key US economic data but also today’s European Union ambassadors meeting.

Last week’s meeting of European foreign ministers was criticised for being impotent, unable to coble anything together which would actually impact Russia. However, the door was left ajar for serious tier 3 economic sanctions and it appears that world leaders have been busy on the diplomatic back channels and managed to agree on tough financial, energy and military action in unison with the US. Like the prior tit for tat exchange of token sanctions between the West and Russia, traders are concerned about how Russia will react and what they deem will be appropriate retaliatory action.

Some healthy corporate earnings results kept the markets fairly optimistic ahead of the nonfarm payrolls report due this Friday. Low interest rates are fuelling plenty of mergers and acquisitions activity giving investors another reason to be cheerful. The Dow Jones resumed its climb gaining 23 points to 16,982 yesterday after a short sell off in the early afternoon trading.

The shared currency gained 8 pips versus the US dollar to 1.3439 largely on risk -on mode in the global markets. Although the US economy might have recovered less than initially predicted in the second quarter, the Fed will eventually move towards hiking rates, sooner than European counterparts. So dollar strength could also be with us for a while.

Despite sectarian violence rising in the Middle East in countries like Libya and Iraq, crude output seems to flow uninterrupted. That almost minimal impact on oil supplies puts ongoing southward pressure on crude prices with the WTI losing 30 cents yesterday to reach $101.58.

Gold prices moved up in early trading yesterday on the back of rising violence in Gaza and Ukraine, only to give back those gains towards the close ending $3.6 in the red at $1304.5. The precious metal looks out of favour with investors and the world is becoming more complacent with conflicts that have been around for some time.