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UK stock market commentary (May 09, 2014): Euro steps on the banana skin

May 9, 2014, Friday, 04:54 GMT | 23:54 EST | 08:24 IST | 10:54 SGT
Contributed by Capital Spreads

When trading starts this morning European equities look set to reverse some of the gains made in the previous session. Mario Draghi strengthened stocks but put a banana skin underneath the heels of the Euro in his press conference yesterday. Initially, the shared currency nearly hit the dizzying heights of 1.40 before the more dovish side of his personality began to unveil. Although rates stayed put, a cut at next month’s meeting could not be ruled out pending some inflation analysis.

Opportunities to trade some news volatility today are limited really to UK Industrial and Manufacturing production, but with all the goings on in the Ukraine, and the weekend break to come, it wouldn’t be a surprise to see some money taken out of risk based assets later on.

After an initial rally the technologies shares did the damage again, reversing trend with the Dow Jones ending just 26 points up at 16,549. With the Fed Chair Janet Yellen sending mixed signals mentioning on one hand the need to spur economic growth but on the other hand cutting the assets buying, it’s hardly a surprise the markets are looking for clear direction.

We saw the shared currency trading in a daily range of 160 ticks yesterday coming within 7 pips to the psychologically important 1.40 mark only to plunge later on, closing 71 points down at 1.3833. The reason behind it was ECB President Mario Draghi’s guidance saying policy makers were ready to ease the monetary policy at the next meeting in June. So much for expectations that it might have happened in May.

As crude oil supplies were at seasonal high levels, the downtrend resumed yesterday with the WTI crude prices losing 60 cents to $100.26. In addition, a strengthening US dollar did not help either making crude oil look more expensive.

Mirroring the indecision in equities gold prices also closed rather flat around $1290, despite a stronger greenback which usually puts downside pressure on prices. The lack of clear direction was the result of a balanced speech by the Fed’s Chair who managed to keep both sides in check.