News Column

MARKET COMMENT: UK Stocks To Open Higher Despite Hawkish Fed

August 20, 2014

Jon Darby

LONDON (Alliance News) - UK stocks are set to open a little higher Thursday, following gains made on Wall Street, which came despite the minutes of the latest Federal Reserve meeting Wednesday showing that the Fed is in a similar position to the Bank of England, with an increasing number of its members indicating that an interest rate rise is likely to be needed soon.

Futures indicate that the FTSE 100 is set to open 8 points higher at 6,763 points.

At the July 29-30 Fed meeting, the Federal Open Market Committee voted 9-1 to maintain its current policy of very gradually withdrawing stimulus from the US economy, with asset purchases set to end on October before rate rises will start to be considered. Most officials expect to start raising rates next year, but some members are now making the case for a "relatively prompt" rate hike.

"Last night’s FOMC minutes showed that the Federal Reserve does appear to be moving in the same direction as the Bank of England, where higher rates might come sooner rather than later," said CMC Markets chief market analyst Michael Hewson.

However, while European markets consolidated on Wednesday after two days of strong gains, US markets continued higher, despite the hawkish signals from the Fed. The DJIA pushed back up towards 17,000 points, gaining 0.4% to close at 16,979, while the S&P 500 gained 0.3%, and the Nasdaq Composite closed fractionally higher at another multi-year high of 4,526.482.

It has been a more mixed session in Asia on Thursday, after the Chinese HSBC manufacturing PMI slipped to a three-month low in August of 50.3, down from 51.7 in July and missing expectations for a print of 51.5. Meanwhile, the Japanese Nomura/JMMA manufacturing PMI expanded faster than expected, to 52.4 in August from 50.5 in July, compared the the 51.7 that had been expected.

The Japanese Nikkei closed up 0.8%, while the Chinese Shanghai Composite continues down 1.0%, and the Hang Seng down 0.8%.

With the historic Fed minutes out of the way, the main event of the week remains Fed Chair Janet Yellen's speech from Jackson Hole on Friday, when she is expected to update the market on her current thoughts about the US labour market.

On Thursday. the flash estimates of individual eurozone services and manufacturing sector PMI's for August will be released throughout the morning, with investors wary that any slip to these leading indicators is likely to translate badly into third-quarter eurozone GDP after the region stagnated completely in the second quarter.

The German numbers are out at 0830 BST, where the manufacturing print is expected at 51.8 in August, down from 52.4 in July, while the services number is expected at 55.5, down from 56.7. The eurozone composite PMI follows at 0900 BST and is expected to slip to 53.4 in August from 53.8 in July.

The domestic data focus will be on the 0930 BST release of UK retail sales data for July. Economists expect retail sales to have grown by 3.0% year-on-year in July, slowing from the 3.6% growth recorded in June, while on a monthly basis, sales are expected to be ahead by 0.4%, up from the 0.1% growth in the previous month. Excluding fuel, retail sales growth is expected to have slipped to 3.4% in July from 4.0% in June.

"The numbers are expected to be a little softer on a year-on-year basis than what we've seen this year, but that's not something we should be concerned about as it's more reflective of where the economy was 12 months ago than where it is now," said Alpari market analyst Craig Erlam.

From the UK corporate calendar Thursday, interim results have been released from mining groups Kazakhmys, London Mining, and New World Resources, as well as high-street retailer WH Smith, and one of the largest and most-discussed AIM listings, Quindell.

Later in the session, there's the US initial jobless claims at 1330 BST, followed by the US Markit manufacturing PMI at 1445 BST, and existing home sales data and the Philadelphia Fed manufacturing survey at 1500 BST.

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Source: Alliance News

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