News Column

MARKET COMMENT: UK Stocks Seen Higher Ahead Of Data And ECB

July 2, 2014

James Kemp



LONDON (Alliance News) - UK stocks are expected to open fractionally high Thursday, following another record-breaking session on Wall Street Wednesday, as investors take their positions ahead of an extremely busy day in the data calendar that includes the release of the European Central Bank's latest interest rate decision, a round of purchasing managers' index data, and the much-anticipated US non-farm payrolls report.


Though setting another record high close Wednesday, US equities struggled to post material gains, even though US data was largely upbeat, as traders prepared for a busy day in the data calendar Thursday.


"If US investors were hoping that yesterday's ADP employment report would be the catalyst that drove the Dow through 17,000, they would have been disappointed, as good though the number was, they had to settle instead for a record close, as opposed to new record highs," says Michael Hewson, chief market analyst at CMC Markets.


The report released by payroll processor ADP on Wednesday revealed that the US private sector employment added 281,000 jobs in June following an increase of 179,000 jobs in May. Economists had been expecting employment to climb by about 200,000 jobs.


The DJIA ended the day up 0.1% at a record high closing level of 16,976.24, the S&P 500 closed up 0.1% at a record high close of 1,974.62, while the NASDAQ Composite closed fractionally lower.


In the UK, ahead of the equity market open, the FTSE 100 is called to open fractionally higher, having closed at 6,816.37 on Wednesday. IG indicates the blue-chip index to open up at 6,819, while CMC Markets expects its to open up at 6,822.


In data released overnight, the Chinese National Bureau of Statistics revealed that the services sector in China continued to expand in June, albeit at a marginally slower pace. The world's second largest economy's non-manufacturing purchasing managers' index came in at 55.0, down from the 55.5 posted in May.


In contrast, the latest survey from HSBC and Markit Economics suggested that China's services sector grew at a faster pace in June. The HSBC services PMI reading came in at 53.1, up from the 50.7 recorded in the previous month.


"The expansion in the service sector reinforces the recovery seen in the manufacturing sector, and signaled a broad-based improvement over the month," said Hongbin Qu, chief economist at HSBC.


Following the data, Asian stocks trade mixed. Ahead of the UK equity market open, the Shanghai Composite index is up 0.3%, while the Hang Seng is down 0.1%, and the Nikkei in Tokyo has closed down 0.1%.


There is still a raft of macroeconomic data scheduled to be released from around the world Thursday.


"In Europe, focus in the UK will be on the June Services PMI," says Rhys Herbert, senior international macroeconomist at Lloyds Bank.


After UK construction and manufacturing PMI came in ahead of expectations earlier in the week, investors will be looking for the third PMI beat in as many days. The UK's reading of of services PMI is released at 0930 BST.


On the continent, the latest reading of the Italian Markit services PMI, which is released at 0845 BST, is expected to come in at 52.0 in June, slightly higher than the 51.6 posted in May. France's services PMI, which is due at 0850 BST, is expected to come in at 48.2, lower than the 49.1 reported in the previous month, while German reading, which is due shortly after at 0855 BST, is expected to fall to 54.8 from 56.0. For the wider eurozone area, services PMI, released at 0900 BST, is expected to come in at 52.8, down from the 53.2 posted in May.


Eurozone retail sales data are due at 1000 BST. Retail sales in the single currency area are expected to have risen 0.3% month-on-month in May, following a 0.4% increase in April. Year-on-year, they are expected to have jumped 2.0% in May, following a 2.4% rise in the prior month.


The European Central Bank is due to publish its latest interest rate decision at 1245 BST, with an accompanying monetary policy statement and press conference by ECB President Mario Draghi at 1330 BST.


The central bank is expected to decide against any new action to help boost the struggling eurozone's economic fortunes as it sizes up the impact of the sweeping measures it unveiled four weeks ago. Analysts instead believe that Draghi could use his regular monthly press conference to unveil further details on the implementation of the complex battery of steps the bank set out in June.


However, since the bank's June meeting, a steady stream of key economic indicators has underlined the fragile state of the eurozone's economy. As a result, Draghi is also likely to be pressed by reporters on what additional steps the bank could take to shore up growth in the eurozone and to head off the threat of deflation choking off the region's recovery from recession.


With the US closed for the Independence Day holiday on Friday, it is a very busy day in the US data calendar Thursday. The Bureau of Labor Statistics releases its participation rate reading at 1300 BST, with US jobless data and the much-anticipated non-farm payrolls release scheduled for 1330 BST.


Consensus expectations are for the print to reveal an addition of 213,000 jobs in all non-agricultural businesses in June, slightly lower than the 217,000 seen in May, according to FXStreet.com.


"Yesterday’s much stronger than expected ADP private payrolls outturn points to upside risks compared with our forecast of 215,000 for payrolls," says Lloyds Bank's Herbert. "However, it should be noted, that the average difference between payrolls and the ADP survey has been about 40,000 since early 2013 and as large as 100,000," he adds.


Meanwhile, June's reading of Markit services PMI from the world's largest economy is scheduled for 1445 BST, ahead of the latest reading of ISM non-manufacturing PMI at 1500 BST.


"Any volatility is likely to come from either the US employment report or the ECB press conference, with the rest of the data likely to be 'market noise'," says CMC's Hewson. "That doesn't mean that the data is unimportant, far from it, but from a policy point of view it’s not likely to have a lasting effect," he says.


In the forex market, ahead of the data slew, the pound trades at USD1.7151, EUR1.2560, CHF1.5254, and JPY174.731. The euro trades at USD1.3651.


In corporate news, FTSE 250-constituents Poundland Group and Greene King have released full-year results ahead of the UK equity market open Thursday.







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Source: Alliance News


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