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UK stock market commentary (June 31, 2014): Traders still wrestling with the good news conundrum

July 31, 2014, Thursday, 08:11 GMT | 03:11 EST | 12:41 IST | 15:11 SGT
Contributed by Capital Spreads

Flat starts are expected for European markets, showing similar indecisiveness as US and Asian markets. There’s a huge amount of uncertainty already stalking sentiment at the moment what with the situation in Ukraine still so fluid but also the natural caution ahead of tomorrows US jobs data. There were few surprises from the Fed, tapering by $10 billion for the sixth time and staying on course to end asset purchases in October. At the same time US GDP growth surpassed expectations coming in at 4%. However, the positive economic numbers made traders nervous and good news has once again become bad news fearing that the beginning of monetary tightening is only around the corner. Expect today’s jobs data to be also discounted mainly by its impact on the monetary policy time line.

Economic confidence in the euro area unexpectedly rose in July despite growing geopolitical tensions. However, investors favoured the greenback yesterday as better than expected US GDP data reignited speculation that hiking interest rates is not far off. Consequently the EUR/USD pair continued to drop, losing 12 pips to 1.3396.

We saw a sharp selloff in the WTI crude yesterday taking the market price into double digits territory to $99.44 a barrel, a $1.76 loss for the day. The main culprit was the weekly oil inventories report released by the Department of Energy which showed a rise for gasoline stockpiles for the fourth week on the back of shrinking demand.

Signs the pace of US economic growth is gaining momentum hit gold prices yesterday which dropped $3.5 to $1295.3. It appears investors are ignoring the geopolitical risks for the moment and revert to gold only temporarily, focusing instead on economic developments.