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Reports UK

UK stock market commentary (June 26, 2014)

June 26, 2014, Thursday, 05:11 GMT | 00:11 EST | 08:41 IST | 11:11 SGT
Contributed by Capital Spreads

European equities are set to stage a minute uptick on the open, supposedly on the dovish ramifications following yesterdays appalling US GDP. Markets have managed to spin the old line of ‘bad news is good news’ if it means loose monetary policy is here to stay a while longer. However, traders aren’t embracing the prospect of an extension to easy Fed policy like they used too as the end date already extends off into infinity. The lack of a negative reaction to the news is being touted as a sign of ‘optimism’ by the media but I’d say it’s more of a delayed reaction as traders come to terms with point that even a zero interest rate policy can’t overcome the structural problems of the US economy.

The US economic data indicated the GDP contracted 2.9% during the first quarter, higher than initially expected and worst reading since 2009. On the other hand corporate investment is getting stronger thus helping the economy to rebound from a shaky start of the year. Investors focused more on the positives and pushed the Dow Jones 24 points up to 16,853.

On this side of the Atlantic, investors were taken by surprise by the extent of US GDP’s fall and came to agree with the Fed’s view of keeping interest rates low for longer. However, that translated in further weakness for the greenback against the shared currency with the EUR/USD pair climbing another 22 pips to 1.3628.

The weekly US crude oil inventories released by the Department of Energy showed a build of 1.7 million barrels versus estimates for 1.2 million barrels drop. Nevertheless, as the government opened the door to more crude exports due to fracking unlocking supplies in shale formations, the WTI prices rose 61 cents to $106.78 a barrel.

Gold prices pulled back initially only to pare early losses and closed near flat around 1319.00 for the day on the US dollar weakness. The geopolitical picture remains tensed, especially in the Middle East and Ukraine with the US economy also showing mixed signals. All of those support demand for safe haven assets.