News Column

MARKET COMMENT: Wall Street Seen Lower As Sanctions Hit Sentiment

July 17, 2014

Jon Darby

LONDON (Alliance News) - US stocks are set to follow the UK and Europe lower Thursday, as investors exercise caution amid the increased rhetoric surrounding a new round of sanctions announced by the US against Russia.

However, another of the big US banks has easily beaten earnings expectations, and there's a lot more in the US corporate and economic calendar to come Thursday that could shift sentiment again.

Currently, futures trading indicates that the DJIA will open about 0.2% lower at about 17,085, while the S&P 500 will open 0.4% lower at about 1,973.

Investor sentiment took a knock after the US announced its latest sanctions against Russia in punishment for its actions in Ukraine. A number of Russia's largest banks and oil companies have been targeted, and the EU is expected to follow up with some extra sanctions of its own by the end of the month.

Russian President Vladimir Putin has been stepping up his rhetoric in response to the new measures and has been quoted as saying the sanctions would take US-Russia relations to a "dead end".

At this stage, however, the sell off is relatively light, and investors are hoping for some more positive company earnings to bring a return to positive equity sentiment.

"This is hardly a major development, it's simply a case of a tad more risk being priced in," said Alpari market analyst Craig Erlam. "In fact, we could see these losses reversed as early as today, with plenty of data being released from the US this afternoon."

Sentiment had certainly been positive before the sanctions were announced, with the DJIA ending at another all-time high on Wednesday as earnings and data continued to be supportive. Another of the big banks has reported ahead of the opening bell and has also beaten expectations. Morgan Stanley earned USD0.94 per share, beating expectations of USD0.55 per share.

"In general so far, earnings have been coming in nicely above expectations and, coupled with the sentiment from the Federal Reserve, US markets are still looking comfortable at current levels," said IG market analyst Will Hedden.

Indeed, the Fed Beige Book, which looks at current conditions in the US, Wednesday indicated economic expansion across all twelve of the Federal Reserve Districts since the previous report, with consumer spending increasing everywhere and increasing loan volumes in most areas.

"Whilst lending conditions are ‘risk-on’ the US economic outlook remains upbeat. This is likely to support earnings growth and equity markets in general," said Shore Capital equity strategist Gerard Lane.

There are more corporate earnings to come Thursday, with the biggest stock by weighting on the DJIA, IBM Corp, as well as technology giant Google Inc, reporting Thursday, although those two aren't until after the New York closing bell.

Microsoft shares are moving higher in the pre-market, after the company announced plans to axe 18,000 jobs.

In terms of data Thursday, US building permits and housing starts data just out have shown slightly less activity that expected, while weekly jobless claims are a little better. In the week ended July 11, an extra 302,000 people claimed for unemployment benefits, down from 305,000 in the previous week and beating expectations for a small rise to 310,000.

The Philadelphia Fed manufacturing survey is due at 1500 BST, with a slip to 16.0 expected in June from a reading of 17.8 in May.

Ahead of the New York open, stocks in London continue to trade lower, with the FTSE 100 down 0.6% at 6,741.30, the FTSE 250 down 0.4% at 15,542.77, and the AIM All-share down 0.5% at 771.47.

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Source: Alliance News

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