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Reports UK

UK stock market commentary (June 06, 2014): Getting flat before Non Farms is for whimps

June 6, 2014, Friday, 06:15 GMT | 01:15 EST | 09:45 IST | 12:15 SGT
Contributed by Capital Spreads

European equities are set to open higher, being dragged up by overnight moves in the US and Asia. Although Mario Draghi lobbed a few dovish grenades in the form of rate cuts and cheap bank loans at the deflation monster, it’s almost as though European traders were disappointed that he didn’t pull out the quantitative easing bazooka and kill it off before it actually starts dishing out carnage in Europe’s cities.

Although Europe had a muted reaction, it appears other regions are more impressed. US markets made new highs and Asia seems quite pleased with it self this morning, possibly on the fact that most of the money flowing out the ECBs coffers because of the negative marginal lending facility will probably be chasing yield in theses regions instead of actually being channelled into the European economy.

Although it’s Non Farm Friday, there’s a lot less whoopla surrounding today’s figure because of the flurry of activity caused by Draghi yesterday. The ADP figure this week came in a lot weaker than expected but this didn’t seem to have any impact on this bull market. Given the current strength and stability of the move higher, even if the BLS figure surprises to the downside, the bulls will concoct some reason to shrug it off and keep rallying. With the FTSE and DAX just perched below their all time highs and the CAC completely detaching itself from its domestic economy; outperforming them both this year, the bulls could be about to rip out the bears jugular.

Ahead of the US jobs report, the Dow Jones rose to fresh all time highs, ending the session 102 ticks up at 16,832. The catalyst was the ECB’ stimulus measures in an attempt to address the deflation threat in the euro zone which boosted optimism about the world economy. And the fact in overnight trading the rally goes on, is testament to investors’ confidence in equities.

In an unprecedented move, European Central Bank reduced the deposit rate to minus 0.1, the first central bank to use negative rates. In addition, the benchmark interest rate was dropped from 0.25% to 0.15%. The initial reaction was a sharp plunge in the shared currency which was short lived. Speculation these measures would do the job, improve the economy and attract investments reversed the daily trend pushing the euro back up. The EUR/USD ended 61 pips higher at 1.3660.

After swinging between gains and losses, the WTI crude prices closed rather flat around $102.40 as energy complex investors kept the nerves following the ECB easing. For the US oil market participants it was more important to wait for the nonfarm payrolls report before committing further. It was possible the reason why Brent moved up but the WTI was on standby.

The stimulus announced by the ECB was a breath of fresh air for gold investors who pushed its price $9.00 higher to $1253.2. It’s too early to say that constitutes a game changer for the precious metal but it was certainly well received amid ongoing equities rally.