News Column

MARKET COMMENT: US Futures Point Higher But Sentiment Is Cautious

July 18, 2014

Jon Darby

LONDON (Alliance News) - US stocks are set to open slightly firmer Friday, following the losses made on Thursday in response to the current uncertain global political situation, with tensions running dangerously high between Russia and Ukraine, and between Israel and Hamas.

US markets suffered heavier falls that those in the UK Thursday, given that news of the plane crash only broke just before the UK market close, and the Israeli ground offensive into the Gaza Strip happened after that, but while Wall Street was still trading.

Following the Thursday's decline, US investors are re-focusing on the economic data and corporate earnings that had previously been doing a good job of supporting equity valuations, although sentiment is likely to remain cautious given the potential for further political deterioration.

Futures trading indicates that both the DJIA and the S&P 500 open about 0.1% higher Friday, while the Nasdaq Composite is set to open about 0.3% higher.

"You could say that both events were fully priced into US indices on Thursday, given that the markets closed after the Israeli ground offensive was announced," said Alpari analyst Craig Erlam.

US economic data has been improving recently, with Thursday having brought a small improvement in weekly jobless claims, and a huge jump in the Philadelphia Fed manufacturing index to a three-year high of 23.9.

Economists are looking for the data improvement to continue Friday, with the Reuters/Michigan consumer sentiment index expected to rise to 83.0 in July from 82.5 in June, when the data is released at 1455 BST.

The Conference Board leading indicator follows at 1500 BST, with analysts expecting the measure of economic activity to remain at a positive 0.5% month-on-month in June.

Ahead of the Wall Street open, Bank of New York Mellon is the latest of the US banks to beat second-quarter estimates, having announced earnings per share of USD0.62, beating the consensus estimate of USD0.57. General Electric also has reported results Friday that are in line with expectations.

Although the markets currently look set for a relatively quiet afternoon, any geopolitical development clearly have the potential to move markets. There are conflicting reports over whether or not the ill-fated Malaysian Airlines flight recorder has been found. Any proof that the plane was indeed shot down, and an indication by whom, could have the potential to bring about a sharp escalation of diplomatic tensions.

Moreover, trouble spots in the Middle East historically have a tenancy to flare-up late on Fridays. Given that Israeli Prime Minister has earlier stated that he is prepared to significantly expand the ground operation in Gaza if necessary, the potential for more violence ahead seems strong.

UK stocks are continuing lower ahead of the US open, with the FTSE 100 down 0.5% at 6,707.36, the FTSE 250 down 0.8% at 15,436.97, and the AIM All-Share down 0.2% at 767.99.

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Source: Alliance News

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