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UK stock market commentary (July 30, 2014): Putin’s move

July 30, 2014, Wednesday, 04:52 GMT | 23:52 EST | 09:22 IST | 11:52 SGT
Contributed by Capital Spreads

European equities are set to open lower as the Russian sanctions weigh. Details of the US and EU sanctions on Russia came out yesterday and although European markets seemed quite nonchalant about it, managing it finish the session with decent gains; US markets had longer to ponder the fallout of such moves and ended deep in the red over it.

Prior to the sanctions, Russian Foreign Minister Sergey Lavrov was dismissive of the impact on Russia and that they wouldn’t resort to tit for tat retaliation. However, irksome uncertainty now descends on markets with regards to what Putin’s reaction will be as there has been no official response and the silence is akin to watching/waiting for your opponent make a move in chess.

Initially the US stocks soared on the back of consumer confidence rising to 90.9, the highest reading since October 2007. But the geopolitical risk took centre stage when President Barack Obama announced fresh sanctions against Russia as he appeared to adopt a tougher tone. As a result, the Dow Jones reversed course dropping 61 points to 16,918.5.

Could the record set by German Bonds be an indication of calm before the storm as deflation remains a real risk? Yesterday, we saw the shared currency resuming its slump against the greenback, 31 pips to 1.3408 as a new set of sanctions against Russia by the US and the EU sent investors into the safety of dollar.

A stronger dollar coupled with plunging equities took their toll on the energy complex pushing the WTI crude prices 59 cents lower to $101.02 a barrel. In addition there were some reports of gasoline stockpiles expanding which kept oil market under pressure.

Gold prices rallied during the morning trading session on safe haven demand following the escalating conflict in the Gaza Strip. However, investors’ focus was quickly switched to the US where the economic data surpassed expectations and in turn changed the mood regarding the precious metals. Gold prices ended $5.9 down to $1298.8 and are yet to react to the fresh bout of sanctions against Russia.

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