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Reports UK

UK stock market commentary (June 16, 2014): il or Gold?

June 16, 2014, Monday, 05:08 GMT | 00:08 EST | 08:38 IST | 11:08 SGT
Contributed by Capital Spreads

European equities are set to open lower this morning after bearish trends in the Asian session overnight. With the possibility of escalation of violence in Iraq U.S. futures dropped and Asian stocks fell. The continued escalation of conflict could lead to a possible civil war or break-up of the country. Traders will be trying to predict which stocks and sectors will profit from continued troubles in Iraq with defensive stocks and sectors possibly being on the agenda.

Brent crude oil futures up 70 cents as army troops kill 270 rebels in Iraq, OPEC’s second biggest crude producer. With WTI following suit up 57 cents, will investors hold on to see if they will get back to the highs of the 9 months, reached on Friday.

Wednesday brings the Fed interest rate decision and FOMC statement.  The rate is expected to be unchanged and the scheduled Fed taper is forecast to continue with another $10 billion monthly reduction in bond purchases. The quarterly forecasts will also be released where there will likely be a cut in the forecast for GDP growth due to first quarter effects from adverse weather. We are expecting only minor revisions to be made so we are not envisioning any fireworks.

Dow

The Dow Jones rallied 20 points to 16,771 on Friday, discarding the rising uncertainty surrounding the violence in Iraq which could easily spread to other regions in the Middle East. It appeared that M&A activity in the US had the potential of overshadowing any loss in consumer confidence. However, we saw a steady sell off in overnight trading with Dow losing already 50 points at the time of writing.

Euro

Spain and Italy both were successful in selling government bonds in a display of confidence vote from investors. It was interpreted as yet another sign the debt crisis in the euro zone is finally on its way out. Nevertheless, the common currency dropped slightly versus the US dollar, 13 pips to 1.3539 on heightened demand for safe haven currencies following renewed sectarian violence in Iraq.

WTI

As Islamist fighters were making gains in Iraq, US crude prices posted sharp rises during last week on fears of oil supplies disruptions. Friday though was more of a ‘book some of the profits’ game which in turn held crude prices in check. So the WTI finished flat at $106.80 but already gapped up on the opening last night, trading currently around $107.30.

Gold

Escalating tensions between Russia and Ukraine enticed investors back into gold market on fresh demand for safe haven assets. In addition, Iraq was hit by turmoil again just when many were expecting better days ahead. That pushed gold prices $3.5 higher on Friday as it did since last night signalling fears the situation could get even more serious.