News Column

MARKET COMMENT: Stocks To Open Lower As Ukraine Referendum Looms

May 8, 2014

Jon Darby



LONDON (Alliance News) - UK stocks are set to open marginally lower Friday, after the FTSE 100 closed at a ten-week high Thursday on the back of some strong company updates, a dovish sounding Federal Reserve chair, and the increasing prospect of a loosening of monetary policy in Europe.


While equities had their best day of the week Thursday, after having fallen for two consecutive days, analysts note that indices continue to struggle to push to fresh highs, with US markets closing mixed overnight, the DJIA marginally higher and the S&P 500 slightly lower.


After closing Thursday at 6,839.25, spread betters are indicating the FTSE 100 will open Friday about 0.2% lower at 6,820.


The ongoing situation in eastern Ukraine, where a referendum on seceding from the country appears likely to go ahead this weekend, is likely to deter investors from taking large positions in risk assets ahead of the weekend.


"The late pull-back into the US close is likely to manifest itself into a weaker European open this morning, with further anxiety about the situation in Ukraine likely to manifest itself over this weekend," said CMC Markets chief market analyst Michael Hewson.


Asia markets were also mixed Friday, with the Shanghai Composite index closing down 0.2%, the Hang Seng currently flat, and the Nikkei closing up 0.3%, all in the wake of slowing Chinese inflation.


Chinese CPI data overnight showed consumer prices rising at 1.8% year-on-year in April, down from 2.4% in March, missing economists expectations for price growth of 2.0%. On a monthly basis, prices fell by 0.3% in April, faster than the 0.1% fall expected.


German trade balance data has already been released Friday and show a trade surplus of EUR14.8 billion in March, lower than the 16.6 billion expected by economists and than the EUR15.8 billion surplus in February.


The euro remains at or below the lows against the dollar reached Thursday afternoon after European Central Bank President Mario Draghi said "the (ECB) governing council is comfortable with acting next time, but wants to wait for the staff projections due in June."


The market is now increasingly anticipating some form of policy action next month, with some analysts predicting an interest rate cut, with deposit rates possibly going negative.


"The ECB hinted strongly that it is preparing to add more accommodation in the next meeting on 5 June, as the bank is running out of patience with the rather low inflation outlook and the strong Euro," says UBS economist Reinhard Cluse in a morning note to clients. "Based on this we now expect the ECB to shift the whole interest rate corridor downwards by 15bp." This would include cutting the deposit rate from zero to -0.15%.


While the German trade balance was slightly behind expectation, it remains much more healthy that the UK's, which is expected to show a deficit GBP9 billion for Mach when data is released at 0830 GMT, relatively unchanged from February.


UK industrial and manufacturing production numbers are the UK economic focus Friday, with the numbers also due at 0830 GMT. On a monthly basis industrial production is expected to have fallen by 0.2% in March after having risen by 0.9% in February, with 2.4% growth expected year-on-year.


Manufacturing production growth is expected at 0.3% month-on-month on March, down from 1.0% in February, while year-on-year growth is expected at 2.9%.


Already released from the UK corporate calendar Friday, the latest traffic statistics from International Consolidated Airlines, which show traffic up 18%, along with interim management statements from Man Group, Drax Group, and Tullet Prebon.







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Source: Alliance News


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