News Column

MARKET COMMENT: UK Stocks To Open Lower Ahead Of BOE, Fed Minutes

May 20, 2014

James Kemp



LONDON (Alliance News) - UK stocks are set to open marginally lower Wednesday, following a negative close on Wall Street on Tuesday and ahead the release of minutes from recent meetings of the policy-setting committees of the Bank of England and the US Federal Reserve.


Wall Street fell sharply on Tuesday on the back of some disappointing quarterly results from large US retailers such as Staples and Home Depot. The DJIA, NASDAQ Composite, and S&P 500 all closed down between 0.7% and 0.8%.


This weakness is set to roll into the UK session Wednesday. Ahead of the UK equity market open, the FTSE 100 is called to open flat to slightly lower. IG expects the blue-chip to open approximately 7 points lower at around 6,795, after it closed at 6,802 on Tuesday, while CMC Markets indicates it to open down 12 points at 6,790.


However, "markets are likely to be subdued ahead UK retail sales and the Bank of Englandís meeting minutes," says Lee Mumford, a financial sales trader at Spreadex


The Bank of England publishes minutes from the May 7-8 meeting of its Monetary Policy Committee at 0830 GMT.


"The MPC minutes are normally of less interest in the months in which the Quarterly Inflation Report is released but that is not the case this time," says Rhys Herbert, senior economist at Lloyds Bank.


Earlier this month, the BoE kept its interest rates steady at a record low of 0.5%, and its stock of GBP375 billion in asset purchases unchanged.


"Voting has been unanimous since July 2011 on the bank rate, but as the UK economy improves some members have to start believing that a greater threat comes from causing an overheated economy, fuelled by low rates, than from a rate hike causing another economic downturn," says Jasper Lawler, a market analyst at CMC Markets.


Nevertheless, the consensus expectation is for the unchanged policy stance to have been supported by all nine members of the monetary policy committee.


UK retail sales data for April are released at the same time. Economists expect retail sales to have increased 0.5% in April, up from 0.1% in the previous month.


Ahead of the data, the pound trades at USD1.6840, EUR1.2284, JPY170.475 and CHF1.5010.


The yen has performed well against its major counterparts overnight after the Bank of Japan maintained the status quo with respect to its monetary policy, opting to persist with its policy of increasing the monetary base at an annual pace of JPY60 trillion to JPY70 trillion.


The central bank also continued to hold its economic assessment by repeating that the domestic economy is continuing to recover moderately, with a recent sales tax hike not having the impact on demand that had been feared.


Ahead of the UK equity market open, the dollar trades at JPY101.173, and the euro trades at JPY138.655.


Also in the data calendar Wednesday, eurozone current account data are released at 0800 GMT, with the preliminary reading of consumer confidence for the euro area in May at 1400 GMT.


In the US, the Mortgage Bankers Association releases its MBA mortgage applications data 1100 GMT. Federal Reserve Chair Janet Yellen gives a speech at 1500 GMT, while the President of the Federal Reserve Bank of Kansas City Esther George speaks at 1650 GMT, and Minneapolis Federal Reserve President Narayana Kocherlakota speaks at 1730 GMT.


The US Federal Open Market Committee releases the minutes from its April meeting at 1800 GMT.


"The FOMC minutes will be of interest in part because there was no press conference following the meeting," says Herbert. "They are likely to show little change in the Fedís views on the state of the economy. However, given market perceptions that Fed Chair Yellenís recent comments have been very doveish, a more balanced view on the outlook for interest rates could spook markets," he says.


In a speech late on Tuesday, a voting member of the FOMC, President of the Philadelphia Federal Reserve Charles Plosser, said the Fed may raise interest rates sooner-than-expected if the US economy continues to speed up after its winter lull. He said that he predicts the recovery will pick up in the second of 2014 and into next year, prompting the Fed to "begin raising interest rates sooner rather than later."


In corporate news, FTSE 100-listed Burberry and SSE have been joined by FTSE 250-listed Great Portland Estates, DCC, Cable & Wireless, HICL Infrastructure Company, FirstGroup, and Telecom Plus in releasing full-year results ahead of the UK equity market open Wednesday.







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Source: Alliance News


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