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Reports UK

UK stock market commentary (September 03, 2014): Too much to think about

September 3, 2014, Wednesday, 05:35 GMT | 00:35 EST | 09:05 IST | 11:35 SGT
Contributed by Capital Spreads

European equities are set to open flat as there’s just too much going on at the moment for traders to comprehend. With the ECB and BoE meeting on Thursday, US jobs data on Friday and NATO meeting over the next two days to formulate their response to the crises in Ukraine and from IS in the Middle East, traders are unable to make definitive decisions so are sitting on the sidelines until they get some clarity.

Amongst the information overload, even if the economic side of things suggest that the bulls should have the day; traders will prefer to keep their exposure low heading in to the weekend as geopolitical surprises always trump the fundamentals. With so many references to 1938, the Cold War and even subtle suggestions of nuclear war from the Kremlin, it would only take an overzealous comment from NATO or Putin to send the markets into a tailspin.

The US manufacturing data showed a stronger than estimated expansion, at the fastest pace in 3 years. However, the equity markets took a breather, sliding from record high levels with the Dow Jones closing 30 points lower at 17,061. A sell off in crude was mentioned as the culprit in turn pushing down energy producers. Could some positive payrolls figures reignite the rally?

Expectations that the US economic growth might convince the Fed to raise rates sooner than market anticipates pushed the greenback to a new recent high versus the euro, 1.3110. But the trend reversed course in the afternoon session and the EUR/USD pair closed just 5 pips up at 1.3133 as investors were not very sure by the course of action potentially adopted by the ECB at its interest rate meeting on Thursday.

Despite good news coming from the US, Europe and China are struggling to keep up as their manufacturing show signs of slowdown.  The fact the output for those two is bigger than the US spilled over into the energy complex fuelling concerns oil demand might suffer. As a result the WTI prices nosedived yesterday, losing $2.49 to $93.27 and in effect cancelled off the gains made in the last few sessions.

With the US dollar on a strengthening path and manufacturing gathering pace, it was hardly a surprise to see gold plunging. The precious metal resumed its southward trajectory, dropping $20.8 to $1265.7. Nonetheless, for everything that has been thrown at gold lately it might be worth pointing out the trend in the last year is sideways. With no fear of inflation for now, could it be the geopolitical risk offering solid support?