News Column

MARKET COMMENT: UK Stocks To Open Higher With Earnings In Focus

July 30, 2014

Jon Darby

LONDON (Alliance News) - UK stocks are set to open fractionally higher Thursday ahead of the latest eurozone unemployment and inflation data, and amid a busy morning for UK corporate earnings.

Futures indicate that the FTSE 100 will open 15 points higher at 6,788.

UK stocks had a choppy session on Wednesday, ultimately closing lower ahead of the announcement from the Federal Reserve Open Market Committee, which stayed on its tapering path by cutting another USD10 billion, bringing the monthly asset purchases down to USD25 billion and leaving it course to end its quantitative easing programme in October.

Wednesday's initial estimate of second quarter US GDP came in higher than expected at an annualised 4.0%, which more than reversed the first quarter slump and sent concern through markets that the Federal Reserve might change its outlook over expectations for the first interest rate rise since the start of the financial crisis. That concern sent equities across Europe to a lower close and boosted the dollar against other major currencies.

The worries appear to have been a little premature, as the Fed reiterated its stance that it will likely be appropriate to maintain interest rates at their current levels for "considerable time after the asset purchase program ends".

"While itís not too much of a surprise to see this passage left in it now, it does raise the prospect that the Fed could start to lose credibility, if they start to ignore the evidence of an improved employment outlook," said CMC Markets chief market analyst Michael Hewson.

There was one new dissenter among the FOMC members, however. Philadelphia Fed President Charles Plosser showed himself to be the rate-setting committee's most hawkish member by voting against the decision to to keep that sentence in the statement on the basis that it is time dependent and does not take into account the considerable economic progress being made in the US.

Despite the signs of dissent in the Fed, the reiteration that rates are staying low for now lifted US stocks off their earlier lows to a flat close for the S&P 500, while the DJIA closed 0.2% lower, and the Nasdaq Composite closed down 0.4%.

In the UK Thursday, the Nationwide house price index has just been released, recording only 0.1% growth in July, the smallest monthly rise in over a year. On an annual basis, prices were up by 10.6% in July, down from 11.3% in June.

In the corporate calendar, Lloyds Banking Group has released its interim results Thursday, and has followed in the recent footsteps of its peers Royal Bank of Scotland and Barclays by reporting results ahead of analyst expectations. TSB Group, Lloyds recently spun off retail arm has also released its maiden results since its late June flotation.

Drinks giant Diageo has released full-year results, while other names with interim results out include BG Group, Centrica, AstraZeneca, BAE Systems, Rolls-Royce, Countrywide, and Intu Properties.

German retail sales rose 1.3% month-on-month in July, more than the 1.0% that had been expected and more than reversing the 0.2% fall in May.

European data remains in focus throughout the morning, with unemployment data due from throughout the region ahead of July inflation data at 1000 BST. German unemployment is expected to have fallen by just 5,000 in July, leaving the rate unchanged at 6.7%, while unemployment across the eurozone as a whole is also expected have remained stable in June at 11.6%.

It is almost two months since the European Central Bank took the unprecedented step of introducing a negative deposit rate in an attempt to both lower the value of the euro and ward off deflationary pressures across the region. Since then, eurozone CPI has remained stable at 0.5%, while the euro initially remained stubbornly strong, with traders saying that unless the ECB introduced full quantitative easing, the single currency was likely to remain well supported until the US Federal Reserve began to raise its interest rates.

That first raise in the US appeared to get one step closer on Wednesday, and indeed the euro fell to its lowest level against the dollar since November 2013 as a result.

While the ECB will be welcoming the falling euro, any slip in eurozone consumer price growth below 0.5% will cause great concern and put pressure on the central bank to take further policy loosening measures. The expectation is for the rate to remain unchanged.

It's also another busy day of US corporate earnings, with LinkedIn the latest of the social-technology stocks due to report. In the US data calendar, initial jobless claims data is due at 1330 BST, followed by the Chicago PMI at 1445 BST.

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Source: Alliance News

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