News Column

MARKET COMMENT: Rising Ukraine Tensions Set London For Lower Open

August 31, 2014

LONDON (Alliance News) - UK stocks are set to open lower with concerns about the tensions in Ukraine very much in the minds of investors ahead of a week also likely to be dominated by central bank interest rate meetings.

Futures indicate the FTSE 100 will open almost 5 points lower at 6,815.1. The index closed at 6,819.75 on Friday.

The tensions between Russia and Western Europe escalated further over the weekend as EU leaders on Saturday decided to "urgently" prepare a new round of sanctions against Russia, in response to Moscow's military role in neighbouring Ukraine.

Then on Sunday, Russian President Vladimir Putin called for talks between the Ukrainian government and pro-Russian separatists fighting in the east of the country, including on the issue of "statehood". "There must be substantial negotations beginning immediately, not on technical issues but on issues regarding the political organization of society and the statehood of south-eastern Ukraine," Putin told Russian state television. Responding to media reactions to the broadcast, government spokesman Dmitry Peskov said that Putin was not advocating for the founding of a new state, according to Itar-Tass news agency.

Asian stocks are performing strongly Monday with the Hang Seng and the SSE Composite trading up 0.3% and 0.7% respectively, while the Nikkei ended the day up 0.3%.

The gains are being made despite Chinese Manufacturing PMI data for August missing expectations, coming in a 51.1, behind the 51.2 expectation, the latest results of a survey by Markit Economics and HSBC Bank showed.

Meanwhile, capital spending in Japan was up 3.0% in the second quarter of 2014, the Ministry of Finance said. That missed forecasts for an increase of 4.1%, and it was sharply lower than the 7.4% gain in the previous three months.

US markets will be closed on Monday for the Labor Day holiday.

The week's economic highlight will be central bank interest rate decisions from the European Central Bank and the Bank of England. The ECB will announce its decisions on Thursday, and investors may be hopeful for action after disappointing recent European data showed an almost standstill level of inflation. ECB President Mario Draghi stated at the recent Jackson Hole symposium that the ECB will adjust policy if necessary.

Furthermore, German quarter-on-quarter GDP results Monday morning showed a contraction of 0.2% in the second quarter, highlighting further the dwindling recovery in Europe, and the hope for ECB action.

"Even without the problems of lacklustre economic growth in Europe, and the prospects of any action at this week’s ECB rate meeting, it is fanciful for investors to think that central banks would be able to mitigate an escalation of events in Ukraine, which at the moment, appear to be spiralling out of control at a rate of knots. Yet the almost sanguine response to the events of the past week would seem to suggest exactly that," says CMC Markets' chief market analyst Michael Hewson.

On Sunday Barclays said it has agreed to sell its retail banking, wealth and investment management, and corporate banking businesses in Spain to CaixaBank SA, as the British lender continues to put into action its plan to scale back in areas that don't meet its targeted returns. In a statement, Barclays said it is selling the Spanish businesses, which have EUR22.2 billion in assets and EUR20.5 billion of liabilities, for EUR800.0 million in cash, though the final amount is subject to adjustment based on statutory net asset value on December 31.

Property developer Berkeley Group has released an interim management statement Monday, stating that its forward sales rose to over GBP2.2 billion in the last financial year and that it has delivered 15,750 new homes in South East London in the last 5 years.

In the economic calendar, manufacturing PMI data for August will be released for a host of European countries and the UK on Monday. In addition, UK mortgage approvals results will be released a 0930 BST.

By Neil Thakrar;

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Source: Alliance News

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