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Reports UK

UK stock market commentary (September 05, 2014): US rebound set to continue or crumble?

September 5, 2014, Friday, 05:40 GMT | 00:40 EST | 09:10 IST | 11:40 SGT
Contributed by Capital Spreads

European equities are set to open soft. Although the FTSE was unchanged yesterday as the MPC stood pat on rates, continental markets were sent soaring following the ECB’s surprise rate cut, and so we expect to see some of that froth coming off on the open. Also keeping markets on edge are the mixed signals coming from the Ukraine. Although Putin and Poroshenko appear to be brokering a peace deal, it doesn’t appear that anyone has told the troops in the field who are still going at each other just as violently.

However, with markets able to net off the events in Ukraine, attention naturally focuses on today’s US jobs data. Trades are likely to be on the sidelines for the first part of the session. Expectations are for a 225K number which will mark the 6th successive +200K reading in a row adding another argument to the strengthening US economic story. Coupled with the run of good economic data out of the US, even if we get a weak number, I’m sure the bulls will be able to shrug it off and post yet more record highs.

Mirroring the previous session, the equities rallied initially on the back of new stimulus package announced by the European Central Bank. Nonetheless the US stocks displayed signs of fatigue pretty quick and just like before they plunged sharply with the Dow ending modestly up at 17,102. The sell off was led by energy producers suffering from a steep drop in crude prices.

The ECB surprise the global markets and cut its refinancing rate to a record low of 0.05%. In addition President Mario Draghi announced the central bank will start buying private debt starting next month in an attempt to fend off deflation. Consequently, the shared currency fell 207 pips versus the US dollar to reach 1.2943, the weakest level in more than a year.

The weekly crude stockpiles report confirmed the estimates and indicated a drop of 1 million barrels. As such the selloff in US crude prices was more the result of a strengthening dollar which put downward pressure on the whole commodities spectrum for that matter. The WTI prices lost 51 cents to $94.57 amid news the cease fire agreement reached previously in Ukraine remains murky.

Although it stopped short of saying QE, the European Central Bank said it will start buying assets which in turn spurred gold buying as wealth preservation alternative. However, a much stronger dollar was hard to ignore by gold investors who threw in the towel and pushed its price $8.0 lower to $1260.9.