News Column

MARKET COMMENT: US Stocks To Open Higher Despite New Russia Sanctions

May 12, 2014

Jon Darby

LONDON (Alliance News) - US stocks are set to follow Europe modestly higher Monday as a day empty of major macroeconomic data releases allows investors to use what good news there has been to send indices higher, while gains are being constrained by the situation in Ukraine as details of new sanctions against Russian individuals and companies begin to emerge.

Security forces and pro-Russian separatists have been clashing once again in eastern Ukraine Monday, after a vote showed overwhelming support of more than 90% for independence from the pro-Western government in Kiev. Several EU foreign ministers rejected the referendum on independence in eastern Ukraine and say they support new sanctions over Russia's annexation of Crimea.

New EU sanctions are said to target companies for the first time, hitting two Crimean firms that were nationalised after the annexation of the peninsular, according to EU diplomats. The list of individuals has also risen to 61 names overall.

Even so, after the DJIA made a record close on Friday, futures trading indicates that the US markets will open modestly higher Monday, with the DJIA and the S&P 500 looking set to open 0.3% higher, while the Nasdaq Composite is set to open 0.5% higher.

"US markets look set to open higher today as US markets brush off the potential implications of referendums in eastern Ukraine as mixed Chinese data overnight and talk of a ‘new normal’ from Chinese president Yi point to possible stabilisation of Chinese growth," said CMC Markets market analyst Jasper Lawler.

As the US earnings season rolls on, CMC Markets calculates that 90% of companies have now reported. The retail sector has been the weakest so far, with only about a third beating estimates. With this in mind, the earnings focus this week will likely be retailers Wal-Mart, Macey's and Nordstrom, as well as economic bellwethers Cisco and Deere, says Lawler.

The major UK stock indices are holding onto their morning gains, led by the Miners after JPMorgan upgraded the whole sector by two steps to Overweight. The FTSE 100 is up 0.4%, and the FTSE 250 up 0.5%, while the AIM All-Share continues to underperform, trading fractionally lower at 806.12.

The pound has been the best performer of the major currencies Monday, making a session high against the dollar of USD1.6903.

Sterling has been boosted by an increasing expectation that the Bank of England is likely to bring in its rate rise timetable later this week, as well as some boosted economic growth forecasts from the Confederation of British Industry.

The CBI on Monday upgraded the UK economic outlook as the recovery continues to take hold. The business lobby organisation forecast 3% economic growth this year, up from the prior estimate of 2.6%. Likewise, growth for 2015 was lifted to 2.7% from 2.5%.

Over the weekend, The Sunday Times fuelled the debate over UK interest rates by reporting that the BoE will indicate it will raise rates sooner than the market has been expecting when it unveils its Inflation Report this week.

The data calendar is empty for the rest of the trading day. After the European trading day, Philadelphia Fed President Charles Plosser talks at 1600 GMT, and the US monthly budget statement is released at 1800 GMT.

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Source: Alliance News

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