News Column

MARKET COMMENT: London Shares Seen Flat To Lower Before UK Jobs Data

June 10, 2014

James Kemp

LONDON (Alliance News) - UK stocks are set to open flat to slightly lower Wednesday, following a relatively muted trading session in the US on Tuesday and in Asia overnight and ahead of a raft of UK jobs data.

Following a broadly negative open on Wall Street Tuesday, US stocks managed to regain some ground over the course of the session, but failed to push materially higher, closing roughly flat.

The S&P 500 closed down 0.02%, while the NASDAQ Composite closed up 0.04%, and the DJIA closed up 0.02%, setting another all-time high closing level.

Ahead of the UK equity market open, the Hang Seng is down 0.3%, the Shanghai Composite index is down 0.1%, while the Nikkei in Tokyo has closed up 0.5%.

"A report released by the World Bank which showed GDP forecasts for the developing world for this year being revised lower...probably didnít help sentiment over night," says Craig Erlam, a market analyst at Alpari.

Developing countries are expected to grow by 4.8%, less than the 5.3% growth estimated in January, the World Bank said in its latest World Economic Prospects report released late Tuesday. China's growth, in particular, is expected to slow to 7.6% in 2014 and further to 7.5% in 2015 and 7.4% in 2016.

The bank lowered its global economic growth forecast for 2014 to 2.8% from the 3.2% it estimated earlier. At the same time, the World Bank left its forecast for 2015 and 2016 broadly unchanged at 3.4% and 3.5%, respectively.

The UK'sFTSE 100 is set to open flat to slightly lower Wednesday. Alpari indicates the blue-chip index to open unchanged at 6,873 points, while IG and CMC Markets expect it to open slightly lower at 6,861 and 6,865, respectively.

"The lack of direction early in the session is probably just a case of traders taking a breather following a few positive days for equities," says Craig Erlam, a market analyst at Alpari.

The UK economy is back in focus Wednesday, after Tuesday's stronger-than-expected April industrial and manufacturing data, with an array of jobs data.

"For now UK data seems to be the gift that keeps on giving and the hope is that todayís unemployment data will be similarly positive," says Michael Hewson, chief market analyst at CMC Markets.

The ILO unemployment rate, due at 0930 BST, is expected to edge down to 6.7%, from the 6.8% posted in March, while the claimant count change reading is expected to report 25,000 fewer unemployed in the UK in April, slightly below the 25,100 reduction posted in March.

"Ordinarily, top of the list here would be the unemployment rate, but that is not necessarily the case today, not among investors anyway," says Erlam. "While this is important and will probably be what makes the headlines across many of the news wires, the other data is arguably equally important now that the Bank of England has opened up its forward guidance to take into consideration a wide range of economic indicators," he says.

Three-month average earnings, including bonuses, are expected to have increased 1.2% in April, having risen 1.7% in March, meaning that wage price increases will fall back below the UK consumer price inflation rate, which shows consumer prices are rising by 1.8% per year. Excluding bonuses, earnings are forecast to have increased 1.2% from 1.3% in March.

"This would be a disappointment and a weak average earnings number here is likely to weaken the pound as it would make the potential for any imminent rate hike that much further off," says Hewson. "Weak or tepid wage growth will make it easier for MPC (Monetary Policy Committee) officials to argue for a delay in any potential rate rise," he says.

Ahead of the data, and the UK equity market open, sterling trades at USD1.6751, EUR1.2371, CHF1.5073, and JPY171.332.

Also in the data calendar Wednesday, the US Mortgage Bankers Association releases its MBA mortgage applications data at 1200 GMT, while the US monthly budget statement is due at 1900 BST.

In corporate news, blue-chip J Sainsbury and mid-cap WH Smith have released trading updates Wednesday. FTSE 250-listed Betfair Group has provided full-year results.

Meanwhile, FTSE 100-constituents Vodafone Group and Johnson Matthey, and FTSE 250-constituents Scottish Mortgage Investment Trust, British Empire Securities & General Trust, Shaftesbury, Big Yellow Group, Booker Group, Edinburgh Investment Trust, Intermediate Capital Group, LondonMetric Property, and Victrex go ex-dividend Wednesday.

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Source: Alliance News

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