News Column

MARKET COMMENT: China Data To Buoys FTSE Ahead Of UK Jobs Data

July 15, 2014

Jon Darby



LONDON (Alliance News) - UK stocks are set to open fractionally higher Wednesday, buoyed by three sets of positive Chinese data economic overnight, and ahead of the latest UK unemployment and average earnings data that will provide the domestic focus for the morning.


Futures trading indicates that the FTSE 100 will open 12 points higher at about 6,722.


In the UK corporate calendar Wednesday, production reports have been released from a number of the miners, including Rio Tinto, Fresnillo, and Hochschild Mining. Quarterly updates have been released from Evraz, Severn Trent, Fenner, London Stock Exchange Group, British Land, Oxford Instrument, and ICAP.


Amazingly, after Sports Direct shareholders finally backed a bonus scheme earlier this month, at the fourth time of asking, co-founder Mike Ashley has Wednesday withdrawn from the 2015 scheme that would have put him in line for a multi-million pound bonus.


The overall UK market will be looking to recover some of its losses made on on Tuesday afternoon as Federal Reserve Chair Janet Yellen took it upon herself to warn on the "stretched valuations" of some US stocks, and in-particular the technology and bio-technology sectors.


"Janet Yellen caught stock markets by surprise yesterday by indulging in a spot of stock picking, or should that be stock kicking, by suggesting that perhaps some sectors were starting to see rather stretched valuations," said CMC Markets chief market analyst Michael Hewson.


Yellen's testimony to Congress brought US markets back from the highs they had been making after JP Morgan and Goldman Sachs announced second-quarter earnings ahead of expectations. The reversal on Wall Street had dragged equity markets in Europe down with it.


Even so, the DJIA managed to close fractionally higher, while the S&P 500 closed down 0.2%, and the technology heavy Nasdaq Composite suffered the most following Yellen's warning, closing down 0.5%.


Asian markets have remained relatively unmoved Wednesday, despite some positive Chinese data, with the Nikkei closing just fractionally lower, and the Hang Seng continuing marginally higher, while the Chinese Shanghai Composite is down 0.3%.


The Chinese economy grew at an annual rate of 7.5% in the second-quarter, matching the world's second biggest economy's stated target, according to official data released overnight. The GDP growth rate expanded from 7.4% in the first-quarter and exceeded economists expectations for GDP to remain unchanged.


Industrial production data released at the same time showed annual expansion of 9.2% year-on-year on June, up from 8.8% in May and exceeding expectations for 9.0% growth. Chinese retail sales grew at 12.4% annually in June, fractionally slower than the 12.5% growth in May and in line with expectations.


The domestic focus Wednesday will be the release of UK unemployment and average earnings data at 0930 BST. Currently at 6.6% and expected to fall to 6.5%, UK unemployment is well below the Bank of England's original forward guidance threshold of 7.0%. Average earnings have become a more important measure for markets to get a gauge on the timing of any possible interest rate rise, and they have disappointed over the last two months, slipping away from inflation and dashing hopes of a return to real wage growth in the UK.


Following Tuesday's jump in consumer prices to 1.9% in June, is seems unlikely that wage growth will catch up to inflation in the very short term. In fact, analysts are expecting growth in average earnings to have slipped further to just 0.8% in the three-months to may, down from the 0.9% recorded in April.


Speaking to Parliament on Tuesday, BoE Governor Mark Carney said his estimation is that the equilibrium rate of UK unemployment, or the rate that won't cause inflation, has fallen to about 6% from 6.5%.


With the US second-quarter earning season now in full-swing, the world's biggest asset manager, Blackrock, is due to release its figures Wednesday, along with another big technology name, eBay.


Later in the session, Janet Yellen will be back in focus as she continues her testimony to Congress at 1500 BST.







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Source: Alliance News


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