News Column

MARKET COMMENT: US Stocks Set To Follow UK, European Equities Lower

June 11, 2014

James Kemp

LONDON (Alliance News) - US stocks are set to follow their UK and European counterparts firmly lower Wednesday, following a mixed, but relatively muted, trading session on Wall Street on Tuesday.

After a largely negative open on Wall Street Tuesday, US stocks managed to rally towards the end of the session, but failed to push significantly higher, closing roughly flat. The S&P 500 closed down 0.02% at 1,950.79, while the NASDAQ Composite closed up 0.04% at 4,337.997, and the DJIA closed up 0.02% at 16,945.92, another all-time high close.

The S&P 500 and DJIA have been posting all-time record highs on an almost daily basis recently, but, with US stock futures pointing to a materially lower open, this impressive run looks set to end Wednesday.

"That said, as we’ve seen already during this rally, a negative open can quickly be reversed so I wouldn’t write off the chances of further record highs being made today," says Craig Erlam, a market analyst at Alpari.

Ahead of the New York bell, the NASDAQ Composite and DJIA are both called to open down 0.4%, while the S&P 500 is indicated to open down 0.5%.

"We are looking at a very quiet day for the US in terms of economic events, with no notable data due out and no other major events scheduled," says Erlam. "With that in mind, the lack of a positive catalyst may offer the opportunity for traders to lock in some profits and wait for a lower entry," he says.

Global appetite for equities has not been helped Wednesday by a late Tuesday announcement from the World Bank that cut its global growth forecast for 2014 to 2.8% from the 3.2% it had earlier estimated. The bank noted the shaky start to the year, both in terms of the bad weather in the US, and the political tension in Ukraine.

The World Bank lowered its growth forecast for the US, in particular, to 2.1% from the 2.8% it estimated earlier, given the contraction in GDP experienced by the world's largest economy in the first quarter.

Prior to the US stock market open, the UK'sFTSE 100 is down 0.6% at 6,833.1, the FTSE 250 is down 1.1% at 16,029.18, and the AIM All-Share index is down 0.8% at 796.9. In Europe, the CAC 40 in Paris is down 0.8%, while the DAX 30 in Frankfurt, which also has been setting record highs recently, is down 1%.

Recently released, the US Mortgage Bankers Association said applications for US home mortgages increased 10.3% on a seasonally adjusted basis in the week ended June 6, compared with a 3.1% decrease in the previous week.

Later on, the US monthly budget statement is released at 1900 BST.

In corporate news, Apple Inc and Starbucks Corp may be in focus Wednesday after the EU announced that it was investigating whether the two companies were inappropriately granted tax benefits in Ireland and the Netherlands.

The European Commission said it has concerns that the corporate income tax calculations used by Irish and Dutch authorities "could underestimate the taxable profit, and thereby grant an advantage to the respective companies by allowing them to pay less tax."

In the forex market, the pound continues to strongly against the dollar, the euro, and the Swiss franc, although it is off its intra-day highs. The currency jumped against other major currencies earlier Wednesday following the release of the best reading of UK unemployment since January 2009.

Unemployment in the UK dropped by 27,400 in April, beating economists' expectations of a 25,000 decrease, having fallen by 28,400 in March. The headline three-month rolling average unemployment rate dropped to 6.6% from 6.8%, beating expectations for a drop to 6.7%.

"The UK labour market is really shifting now as the economy strengthens and confidence surges," said Robert Wood, chief UK economist at Berenberg.

Ahead of the US equity market open, sterling trades at USD1.6784, EUR1.2391, and CHF1.5088.

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Source: Alliance News

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