News Column

MARKET COMMENT: UK Stock Set To Open Higher After European Gains

May 26, 2014

Jon Darby

LONDON (Alliance News) - The FTSE 100 is set to open higher Tuesday, as the UK markets return from a long weekend and play catch up with major European markets, which posted gains on Monday in the wake of a big weekend of political news in both Western and Eastern Europe.

While UK and US markets were closed for holidays Monday, it was a generally positive day for equity markets across the rest of Europe and Asia. The German Dax 30 gained 1.3%, while the French CAC 40 gained 0.8%. The Japanese Nikkei closed up 0.6% while the Chinese Shanghai Composite remains close to flat.

Having closed Friday at 6,815.75, the FTSE 100 is called to open 24 points higher at 6,840 by CMC markets.

The gains made in Europe Monday come despite a surge in support for eurosceptic - and in some cases far-right - political parties across the region from the UK to Scandinavia. In the UK, the UK Independence Party made strong gains in local elections and won the European vote, becoming the first party other than Labour or the Conservatives to win a nationwide poll for 108 years. In Denmark, the eurosceptic People's Party won, while in France the far-right National Front won with a quarter of the vote.

Markets appeared to shrug off this threat to EU political stability however. Rabobank analyst Michael Every notes that eurosceptic parties have a poor record of co-operating in Brussels, while the major parties will rally against the common threat. Furthermore, the vote "increases pressure on the European Central Bank to act in June," says Every.

Indeed with a relatively quiet week ahead in terms of macroeconomic data, the major focus is squarely on next Thursday's ECB meeting, at which the market is increasingly expecting some form of further monetary easing to be announced.

"The promise of that extra liquidity is still likely to trump political scares," said Every.

The result of the weekend vote in Ukraine, confirming Petro Poroshenko as the new president, has been more helpful from a market perspective. The new leader is thought to be likely to try to deal with Russia on a more conciliatory basis.

"The weekend vote in the Ukraine appears to have been one major catalyst for yesterday’s strong European session," said CMC Markets chief market analyst Michael Hewson.

Despite the new president bringing a certain amount of optimism, tension remains, and there have been fresh clashes between the Ukrainian military and pro-Russian rebels at Donetsk airport in eastern Ukraine over the weekend.

US drug maker Pfizer confirmed Monday that it no longer plans to make an offer for UK rival AstraZeneca, with the deadline under UK takeover rules for it to make a final offer having passed.

Lloyds Bank has confirmed Tuesday morning that it intends to float 25% of it's retail arm TSB, with an offer expected in June.

The UK corporate calendar in relatively light Tuesday, with full-year results having been released from Aveva Group PLC, as well as Renold PLC.

In the data calendar the main focus will be on US numbers, with durable goods orders due at 1330 GMT, followed by the Markit services PMI at 1445 GMT. Headline durable goods orders are expected to have contracted by 0.5% in April. "Overall, the message is expected to be of a weaker print following an exceptionally strong one," said Rabobank in a morning note to clients. "Although notably the pattern in the year-on-year trend in core orders shipped is still quite disappointing for this stage of a recovery.

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Source: Alliance News

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