News Column

MARKET COMMENT: US Stocks Seen Higher With Data, Fed In Focus

July 30, 2014

James Kemp

LONDON (Alliance News) - US stocks are set to open modestly higher Wednesday, overturning some of the losses posted on Tuesday, as investors await some highly anticipated macroeconomic data and the Federal Reserve's latest monetary policy decision.

Meanwhile, social media and technology stocks will be in focus following Twitter Inc's encouraging results after the US stock market close on Tuesday.

US equities closed firmly lower Tuesday after the European Union and US-imposed additional economic sanctions on Russia over its involvement in Ukraine and the downing of a Malaysian Airlines passenger jet by Ukrainian separatists.

The NASDAQ Composite, DJIA and S&P 500 all closed down between 0.1% and 0.5%

However, this negative sentiment looks set to be somewhat short-lived, with US stock futures pointing to a higher open Wednesday. The NASDAQ Composite is called to open up 0.4%, while the DJIA and S&P 500 are expected to open up 0.2%.

NASDAQ Composite-constituent Twitter Inc reported strong results after the Wall Street close on Tuesday.

The online messenger service reported a quarterly revenue of USD312 million, more than double the USD139 million a year earlier. Much of the revenue boost came from a 29% increase in advertising sales.

Encouragingly, active members reached 271 million as of June 30, an increase of 24% compared to the same period a year earlier.

As a result, the stock is up 24% in premarket trading.

In Europe, ahead of the US equity market open, London'sFTSE 100 is down 0.1% at 6,802.92, while the FTSE 250 is almost perfectly flat at 15,688.47, and the AIM All-Share index is down 0.1% at 770.57. The CAC 40 in Paris is up 0.1%, while the DAX 30 in Frankfurt is down 0.1%.

"Its been a fairly slow start to the week so far, with volumes and volatility being hit from all sides," says Craig Erlam, a market analyst at Alpari. "Fortunately, were now entering the latter half of the week so volatility and trading volumes should improve significantly," he adds.

There is a raft of top-tier data still to be released from Europe and the US Wednesday.

The preliminary release of German consumer price inflation is due at 1300 BST. Consumer prices are expected to have risen 0.8% year-on-year in July following the 1.0% increase in June. On a month-on-month basis, consumer prices are estimated to grow at a slower rate of 0.2%, after the 0.3% rise in June.

The German harmonised index of consumer prices, which is released at the same time, is forecast to increase 0.8% year-on-year in July, slower than the 1.0% rise in June. On a monthly basis, the HICP is expected to climb 0.3% in July following the 0.4% increase in June.

After this, "there will barely be time to pause for breath today once US data starts emerging," says Chris Beauchamp, a market analyst at IG.

The latest ADP employment change report, which is widely regarded as a warm-up for the monthly non-farm payrolls on Friday, is released at 1315 BST. Economists expect the employment report to show an additional 230,000 jobs added in July after 281,000 were added in June.

This is quickly followed by the initial estimate of US second quarter gross domestic product and personal consumption expenditures data at 1330 BST. Expectations are for annualised GDP to come in at 3.0% for the second quarter, reversing the 2.9% contraction posted in the first quarter.

However, "if the US falls short of expectations here, it may suggest that the impact of the first quarter slowdown has stretched beyond the quarter itself and had an impact on the overall recovery," says Alpari's Erlam. "This would not be ideal by any stretch of the imagination, the only silver lining for the markets is that it may be enough to delay the first rate hike which could come as early as the first quarter of next year, at this rate," he adds.

The flash reading of US personal consumption expenditure prices is expected to show a 2.0% quarter-on-quarter rise in the second quarter, slightly higher than the 1.4% increase posted in the previous quarter.

Later on, after the UK equity market close, the US Federal Open Market Committee is scheduled to release its latest monetary policy and asset purchase decision at 1900 BST. It is widely expected that the Fed will maintain its interest rate at 0.25% and lower its monthly bond-buying programme by another USD10 billion, lowering its asset purchases to USD25 billion a month.

"The FOMC is unlikely to deliver any major surprises," says Rhys Herbert, senior economist at Lloyds Bank. "There is no press conference and Fed Chair (Janet) Yellen has recently updated the markets on the Fed's thinking in her testimony to Congress," he adds.

In US data already released, the Mortgage Bankers Association said applications for US home mortgages decreased 2.2% on a seasonally adjusted basis in the week ended July 25, compared with a 2.4% increase in the previous week.

In the forex market, ahead of the US equity market open, the pound trades at USD1.6933, EUR1.2633, CHF1.5368, and JPY173.142. The euro trades at USD1.3400.

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Source: Alliance News

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