UK Market Comments

Those hoping for a quiet end to the week were caught out as late news emerged of a possible clash between Ukrainian and Russian forces.

UK markets

Aside from gold miners, which are having a difficult session, the general revival in risk appetite carried most stocks higher. It was looking fairly rosy until the final part of the session, when newswires began reporting increased conflict in Ukraine, with reports indicating Ukrainian action had destroyed part of the Russian convoy. This was sufficient to send markets tumbling, with the DAX leading the way as ever, although the FTSE was holding above the 6700 level as the last half-hour began. BHP has enjoyed a good bounce today but the company will need to elucidate its plans more clearly next week at its full-year results. From a valuation perspective the company still looks tempting versus its peers, and this should help provide steady buying pressure that will push the shares higher.

US markets

US indices dropped back, with progress hampered by a drop in the Empire manufacturing number back from a four-year high and a slump in the Michigan confidence index to its lowest level since November. This left markets broadly unaffected, but the news from Ukraine began a period of selling, although once again the US’s distance from the conflict meant the reaction was more muted. With the weekend looming, the possibility remains that geopolitical risk has come back on the agenda. Traders will be anxiously scanning their newsfeeds for any sign of a Russian response over the coming hours.

Commodities

The return to equity markets has taken a bite out of gold once again, leaving the metal floundering below $1300, before bouncing back as risk aversion returned with a vengeance. If the weekend sees more news that would cause equity markets to worry, gold could see more gains in the direction of $1320. Oil’s small bounce turned into a significant move higher as markets reacted to the news, claiming back lost ground thanks to revived fears about supply worries.

FX

Gains in USD/JPY were wiped out by the afternoon headlines, and USD/JPY’s previous move towards ¥103 now looks in jeopardy. The reaction in GBP/USD was limited, with most traders unwilling to sell the pound following this week’s move, preferring instead to wait until Wednesday’s BoE minutes. For a real bounce to occur, sterling bulls need to see more than one policymaker vote for a rate hike, and if none do so then the 200-DMA could be rapidly breached, putting the currency pair on course for a move back towards the sub-$1.6500 level.