News Column

MARKET COMMENT: UK Stocks To Open Higher Ahead Of BoE Minutes, FOMC

June 17, 2014

James Kemp

LONDON (Alliance News) - UK stocks are set to open higher Wednesday, following a firm close on Wall Street on Tuesday and ahead of the release of minutes from the Bank of England's latest interest-rate-setting meeting and a US Federal Open Market Committee policy decision.

US equities posted modest gains on Tuesday as investors digested mixed economic data and looked ahead to the FOMC meeting. Housing starts and building permits fell by more than expected in May, while consumer prices gained traction, recording their largest increase in more than a year in May, reflecting higher household costs, separate reports showed.

On Wall Street, the DJIA and S&P 500 closed up 0.2%, while the NASDAQ Composite closed up 0.4%.

"European and US equity markets continued to recover some of their lost equilibrium yesterday after last week’s sell off, but it remains quite slow progress, with a cocktail of geopolitical concerns keeping investors cautious and oil prices elevated," says Michael Hewson, chief market analyst at CMC Markets.

The UK'sFTSE 100 is set to push higher Wednesday. IG and CMC Markets expect the blue-chip index to open up at around 6,780 points, having closed up 0.2% at 6,766.77 on Tuesday.

"The June MPC (Monetary Policy Committee) minutes and the outcome of the latest FOMC meeting mean that the focus today is on monetary policy," says Rhys Herbert, senior international macroeconomist at Lloyds Bank.

The Bank Of England is due to release the minutes of its June MPC meeting at 0930 BST.

At the meeting, the central bank opted to leave its interest rates unchanged at a record low of 0.5%, and its stock of GBP375 billion in asset purchases unchanged. Economists' expectations are for Wednesday's minutes to show that the nine members of the BoE's rate-setting Monetary Policy Committee voted unanimously to keep policy unchanged.

However, "the release of the latest Bank of England minutes have been widely speculated upon, after Bank of England Governor Mark Carney’s speech at Mansion House last week, when he caught markets off guard with his comments that a rate hike may come sooner than markets expected," says Hewson. "This rather sudden change of tone has been interpreted as an early indication that today’s minutes could see a split vote on the timing of an interest rate rise," he says.

Indeed, some economists have forecast that notable hawk Martin Weale may have already voted for an interest rate hike.

The US Federal Reserve also will be in focus Wednesday. The Fed's interest rate and asset purchasing programme decisions, together with the Federal Open Market Committee's economic projections, are released after the UK equity market close at 1900 BST. The Fed's monetary policy statement and press conference are due shortly after at 1930 BST.

Economists' expect the US central bank to announce another USD10 billion reduction in the pace of its quantitative easing programme.

"We do not expect any significant surprises from the Fed. It is almost certain to announce a further USD10 billion tapering of its asset purchases, to USD35 billion, leaving the programme on course to be unwound by year end," says Lloyds' Herbert. "Of more interest is likely to be the tone of the accompanying FOMC statement," he adds.

Overnight, minutes from the Bank of Japan's meeting at the end of May revealed that the members of the central bank's monetary policy board believe that Japan's economy is likely to continue its moderate recovery. The monetary easing that is in place appears to be having the intended results, the board said, as inflation expectations appear to be rising.

However, it also cautioned that some downside risks to recovery remained, including developments in emerging markets and commodity-exporting countries.

At the meeting in May, the Bank of Japan maintained the status quo with respect to its monetary policy, opting to persist with its policy of increasing the monetary base at an annual pace of JPY60 trillion to JPY70 trillion. It left its benchmark unchanged at 0.00% to 0.10%.

Also released overnight, Japanese trade data showed that the nation's exports declined year-on-year for the first time in 15 months in May. The value of exported goods fell 2.7% in May compared to a year earlier, to JPY5.61 trillion. Imports were down 3.6% to JPY6.52 trillion for the first drop in 19 months.

Following the data, Asian stocks trade mixed. The Nikkei in Tokyo has closed up 1%, while the Shanghai Composite index is trading down 0.5%, and the Hang Seng is almost perfectly flat.

As well as the central bank releases, construction output figures for the eurozone are released at 1000 BST, while the US Mortgage Bankers Association releases its MBA mortgage applications data at 1200 BST.

In the corporate calendar, FTSE 250-listed Berkeley Group has released full-year results ahead of the UK equity market open, while N Brown has released a trading update.

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Source: Alliance News

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