LONDON (Alliance News) - UK stocks are set to extend their recent weakness Friday, following a sharp sell-off in the US and European equity markets on Thursday, and as investors take their positions ahead of another busy day of macroeconomic and corporate releases.
Stocks in the US and Europe were hit by a number of concerning pieces of news from across the world Thursday, including fears over the timing of an interest rate rise by the US Federal Reserve, another drop in consumer prices in the eurozone, a lower growth target suggested for China by the International Monetary Fund.
Following a sharp sell-off in Europe and the UK, US equities closed materially lower. The NASDAQ Composite, DJIA, and S&P 500 all closed down between 1.9% and 2.1%.
"The simple fact of the matter is that it was probably a combination of a number of factors, along with the fact that the markets can act a little irrationally at month end," says Craig Erlam, a market analyst at Alpari. "The important question now is whether this was just a one-day sell-off or the start of a more significant correction," he adds.
Ahead of the UK equity market open Friday, the FTSE 100 is called to open modestly lower, having closed at 6,730.11 on Thursday. CMC Markets and Alpari both indicate the blue-chip index to open down 17 points at around 6,713, while IG expects it to open even lower at 6,707.
"Given yesterday’s sharp declines anyone hoping for a quiet start to August is likely to end up disappointed as we look to start the new month in the same way as we ended the old month, namely on the back foot with a fairly busy economic calendar," says Michael Hewson, chief market analyst at CMC Markets.
In data released overnight, the latest purchasing managers' index reading from HSBC and Markit Economics revealed that China's manufacturing sector expanded at an accelerated pace in July. China's manufacturing PMI reading for July came in at 51.7, slightly lower than last week's preliminary estimate of 52.0, but up sharply from the 50.7 posted in June.
"This is slightly lower than the flash reading released earlier, as several sub-indices saw small downward revisions," says Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC. "Nevertheless, the economy is improving sequentially and registered across-the-board improvement compared to June."
Meanwhile, China's NBS manufacturing PMI for July also came in at 51.7. This represented an slight increase from the 51.0 reported in June and came in above economists' expectations of a more modest rise to 51.4.
Manufacturing activity in Japan, however, expanded at a slower pace in July as output contracted. The Nomura/JMMA manufacturing PMI fell to 50.5 in July, from 51.5 in June, indicating weakened activity. Manufacturing output contracted in July, after increasing in the previous month, as demand was affected by the increase in sales tax.
Following the releases, Asian stocks trade mixed. Prior to the UK equity market open, the Nikkei in Tokyo has fallen 0.6%, the Hang Seng is down 0.5%, and the Shanghai Composite index is up 0.2%.
Still to come in the data calendar Friday, the latest reading of the Italian Markit manufacturing PMI, which is released at 0845 BST, is expected to come in at 52.6 for July, as it did in June.
The French and German economies are expected to have continued their divergence, with France's manufacturing PMI for July, which is due at 0850 BST, expected to come in at 47.6, in line with its preliminary reading, but lower than the 48.2 reported in the previous month. The German reading is due shortly after at 0855 BST, and is expected to come in at 52.9, as it did in its preliminary reading, slightly higher than the 52.0 posted in June.
For the wider eurozone area, manufacturing PMI, released at 0900 BST, is expected to edge higher to 51.9 in July, up from the 51.8 recorded in the previous month.
"Once again, people will be looking for further evidence of a slowdown in the euro area, as well as signs that the German economy is genuinely suffering as a result of the Ukrainian crisis and the sanctions against Russia," says Alpari's Erlam. "This has already been confirmed by Adidas’ profit warning yesterday but these PMI readings could provide further insight into how much confidence is deteriorating in the eurozone’s largest economy," he says.
The UK manufacturing PMI, released at 0930 BST, is expected come in at 57.2. While this is slightly down from the 57.5 posted in June, the figure remains firmly in expansion territory.
In the US, employment data and the highly anticipated non-farm payrolls release are scheduled for 1330 BST. Consensus expectations are for the non-farm payrolls print to reveal an addition of 233,000 jobs in all non-agricultural businesses in July, modestly lower than the 288,000 seen in June.
Nevertheless, "even if its lower than that, as long as the number doesn’t fall below 200,000, markets are likely to be fairly relaxed about it, with the US dollar likely to remain strong as it enjoys its best monthly performance in over a year, against a basket of currencies," says CMC Markets' Hewson.
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. The Reuters/Michigan consumer sentiment index for July is released at 1455 BST.
In the forex market, ahead of the data and the UK equity market open, the pound trades at USD1.6879, EUR1.2604, CHF1.5339, and JPY173.710. The euro trades at USD1.3386.
In the corporate calendar, FTSE 100-listed International Consolidated Airlines Group, Smith & Nephew, Rexam and IMI have been joined by FTSE 250-listed Direct Line Insurance Group, Capital & Counties Properties, UBM, Man Group, Vesuvius, William Hill, and Rentokil Initial in releasing half-year results Friday.
Royal Bank of Scotland Group has published its finalised half-year results after it surprised the market by releasing preliminary results last week.