News Column

MARKET COMMENT: UK Stocks Seen Lower Ahead Of Key European Data

June 2, 2014

James Kemp

LONDON (Alliance News) - UK stocks are set to open lower Tuesday, shrugging off a strong performance by Asian equities overnight, ahead of some key macro economic data from Europe that could influence the highly anticipated European Central Bank meeting later this week.

Asian stocks are broadly higher Tuesday on the back of some strong Chinese data.

An HSBC survey revealed that China's non-manufacturing purchasing managers' index rose to 55.5 in May from 54.8 in April, building upon the strong rise in the official manufacturing PMI figure released earlier this week.

"The only bum note came with the final revision to the HSBC manufacturing PMI which eroded some of the gains seen in the original release that impressed so much," says Joshua Mahony, a research analyst at Alpari. However, "the fact that the measure still came in significantly higher than previously expected meant that the market paid little attention on this occasion," he adds.

The HSBC manufacturing PMI rose to 49.4 in May from 48.1 in April, but down slightly from the earlier flash estimate of 49.7.

Ahead of the UK equity market open, the Hang Seng is up 0.6%, the Shanghai Composite index is up 0.2%, while the Nikkei in Tokyo has closed up 0.7%. Chinese markets were closed on Monday for a holiday.

In the US, Wall Street closed mixed Monday following a volatile day of trading.

After a strong start, US stocks plummeted following a report by the Institute for Supply Management that showed an unexpected decrease in its reading on US manufacturing activity. The report generated some uncertainty about the strength of the economic recovery from the weather-induced weakness seen earlier in the year.

However, stocks climbed well off their lows after ISM revealed that the data was incorrect due to a series of technical glitches.

Eventually, the data, which had to be corrected twice, showed that the purchasing managers index inched up to 55.4 in May from 54.9 in April, in line with economists' estimates.

The S&P 500 and DJIA closed up 0.1% and 0.2%, respectively, while the NASDAQ Composite closed down 0.1%.

However, "the European markets are seeking to buck the recent trend of positivity today with futures pointing to a pause in the incessant strength seen across the global developed markets in recent weeks," says Mahony.

London'sFTSE 100 is expected to open slightly lower Tuesday. IG indicates that the blue-chip index will open down at approximately 6,856 points, having closed at 6,864.1 on Monday. CMC Markets and Alpari expect an even lower open of 6,850 and 6,846, respectively

"The most important figure for the day ahead of the Thursday’s rate setting meeting for the ECB will be the Eurozone May CPI estimate," says Jasper Lawler, a market analyst at CMC Markets.

Indeed, "the pause seen across European indices futures along with most of the euro pairs is likely attributed to the release of today’s CPI figure out of the Eurozone which will likely provide markets with an idea of whether Mario Draghi will take strong action at the ECB meeting on Thursday," says Alpari's Mahony.

The preliminary reading of consumer price inflation for the euro area, due at 1000 BST, is expected to come in at 0.7% year-on-year, following a 0.7% increase in May. The preliminary reading of core inflation is expected to have slowed to 0.9% in May from 1% in April.

Around the same time, Eurostat also releases its unemployment report, which is forecast to reveal that the unemployment rate remained stable at 11.8% in April.

Also still to come in the data calendar Tuesday, Markit Economics releases its construction purchasing managers' index report for the UK at 0930 BST.

In the US, the ISM New York index is released at 1445 BST, with factory orders data due at 1500 BST.

In corporate news, FTSE 100-listed Wolseley has released a trading update, while FTSE 250-listed LondonMetric Property and Pennon Group have released full-year results.

AIM All-Share-constituent London Mining said late on Monday that it has evacuated "non-essential" staff from its operations in Sierra Leone in response to a deadly outbreak of the Ebola virus. The exploration and development mining company said production at its Marampa mine had not been affected, and it is working with local and international agencies to monitor the dangerous situation in west Africa.

Meanwhile, Goldman Sachs has lowered its price target on blue-chip mining companies Rio Tinto, BHP Billiton, and Anglo American. Goldman has lowered its price target on Rio Tinto to 2,530.00 pence from 2,550.00p, its target on BHP Billiton to 1,820.00p from 1,850.00p, and its target on Anglo American to 1,180.00p from 1,240.00p.

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Source: Alliance News

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