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UK stock market commentary (September 04, 2014): Play it safe, don’t trust anyone

September 4, 2014, Thursday, 05:25 GMT | 00:25 EST | 08:55 IST | 11:25 SGT
Contributed by Capital Spreads

European equities are set to edge lower on the open. Despite crossed fingers that the ECB will start up the printing presses and signs that Putin has had his fill in Ukraine, both have a history of disappointing. Mario Draghi has rehashed the phrase ‘do whatever it takes’ for two years and the potency of those words naturally waned as markets felt he was crying wolf. Fearing that verbal quantitative easing wasn’t working, Mario Draghi ramped up expectations at Jackson Hole alluding to possible action soon. Unfortunately, he has put undue pressure on himself and markets will want to see something concrete at today’s ECB press conference. The risk is that just repeating what he said at Jackson Hole may not be enough for traders.

Also, markets jumped on the news that Putin and Poroshenko had agreed on a ceasefire yesterday. However, this is classic Putin. Whenever condemnation gets a little too hot, he extends a hand of friendship by calling off military exercises or agreeing to talks only to kick the west in the groin with an even bigger incursion than the previous.

Initially, it appeared that Ukraine and Russia agreed on a cease fire which quickly sparked a sharp rise in the US equities. However during the afternoon session, the Dow Jones gave back the early gains finishing just 16 points higher at 17,077. The Beige Book report indicated the US economy remains on the right path of recovery and encouragingly the pace of growth has not lost steam despite the rest of the world stumbling.

For once the economic data gave the ECB President Mario Draghi some ammo. Manufacturing figures in Spain and Ireland where reforms were applied in exchange for bailouts, were a pleasant surprise and pushed the shared currency 18 pips up against the greenback to 1.3150 ahead of the interest rate meeting scheduled for later today.

The WTI crude prices posted a sharp rebound yesterday recouping $1.79 to $95.07 a barrel after a survey in the US showed ongoing economic strength. The US Department of Energy will release its weekly crude inventories report today, a day later than usual due to the Labor Day holiday and the forecast calls for 1 million barrels draw.

After the violent selloff in the previous day, bargain hunters joined the market and pushed gold prices $3.3 higher to $1269.2. A lower US dollar helped despite a cease fire agreement reached in Ukraine which reduced demand for safe haven assets.