News Column

MARKET COMMENT: Wall Street Set To Open Higher Ahead Of US Growth Data

May 29, 2014

Jon Darby

LONDON (Alliance News) - US stocks are set to open a little firmer Thursday, with the focus squarely on the release of revised first-quarter GDP numbers at 1330 BST.

Futures trading currently indicates that the DJIA, the S&P 500, and the Nasdaq Composite all will open between 0.1% to 0.2% higher.

Those levels could change quickly however on release of the GDP data ahead. Expectations of first quarter growth have changed hugely over the last few months as the economic impact of the severe winter weather in the US has materialised into disappointing corporate earnings.

Economists had initially predicted GDP growth of more than 1.0% over the first quarter, but those hopes were dashed when the initial print came in at the end of the quarter at just 0.1%. Since then, expectations have been revised down further, and analysts are now expecting the revision to wipe out all the previously reported growth and post a negative 0.2% reading.

"The downward revision reflects weaker-than-expected March out-turns for inventories, international trade, construction, and capital goods shipments," said Lloyds Bank senior international macroeconomist Carl Paraskevas. "However, this should be seen as old news with more attention likely being paid on April pending home sales later in the day and the personal consumption deflator tomorrow."

Other commentators say the reasonably healthy US durable goods data released on Tuesday suggests the reading might not be that bad. The danger, however, is that we see a significant downward revision that causes people to doubt the recovery in the US," says Alpari market analyst Crag Erlam.

Either way, the 1330 BST release provides the major economic focus Thursday following a morning of very low trading volumes in Europe, where some markets were closed for a public holiday.

US initial jobless claims data is due at the same time as the GDP numbers and "should offer a much better picture of the US recovery," says Alpari's Erlam.

The expectation is for the number of people making new claims for unemployment benefits to fall to 318,000 in the week ended May 23 from 326,000 in the previous week.

After the markets have opened, the pending home sales data, due at 1500 BST, is expected to show a drop in growth to 1.0% month-on-month in April, from 3.4% recorded in March.

Apple shares are a little higher in the pre-market following the confirmation that it is buying headphone maker and streaming music service Beats for USD3 billion. It is the biggest purchase ever for the iconic technology company, which has struggled to maintain growth since the 2011 death of co-founder Steve Jobs.

Back in the UK, stocks are managing to push higher in the thin market, with the FTSE 100 up 0.4% at 6,877.93, the FTSE 250 up 0.5% at 16,020.59, and the AIM All-Share up 0.4% at 808.19.

In an otherwise very quiet morning for economic releases, the UK Treasury released Help to Buy data that broadly shows the housing scheme isn't having that much effect on the housing market. As at the end of April, 27,000 people had used the scheme to buy a house with an average value of GBP190,000, and 85% of them were first time buyers. That means the scheme has been used on fewer than 3% of transactions since its introduction, and only at the lower end of the housing market, considering the average UK house price is above GBP250,000.

The data suggests that any reining in of the scheme, such as reducing the maximum property value it can be used on to GBP300,000 from GBP600,000, would have little impact. However, the scheme's largest effect on the housing market is arguably through expectations, says Berenberg chief UK economist Rob Wood. "The scheme fuels one-way expectations; the impression that the government wants price to go up." With this in mind, "curtailing the scheme in any way would send a strong, worthwhile, message," says Wood.

Berenberg expects the Bank of England to recommend that the government water down the scheme at its annual review in September. The debate around the scheme's longevity is weighing on UK house builders Thursday, with FTSE 100-listed Barratt Developments down 2.4%, and blue-chip peer Persimmon down 1.9%, while in the FTSE 250 Redrow leads the fallers, down 3.2%.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Alliance News