News Column

MARKET COMMENT: UK Stocks To Follow US Higher Despite Weak China Data

August 4, 2014

James Kemp

LONDON (Alliance News) - UK stocks are set to open slightly higher Tuesday, following a positive session on Wall Street overnight and ahead of a host of services purchasing managers' index readings from Europe, the UK and the US.

The FTSE 100 closed marginally lower on Monday, despite spending much of the day in the black, after a late sell-off reversed early gains made on the back of the state bailout of Portugal's troubled Banco Espirito Santo over the weekend.

However, "once Europe’s markets had closed US markets appeared to have no such reservations picking up the baton and running with it, to close higher for the first time in four days, and in the process dragging the Dow back into positive territory for 2014," says Michael Hewson, chief market analyst at CMC Markets.

The DJIA closed up 0.5%, while the S&P 500 and NASDAQ Composite closed up 0.7%.

"This positive close is likely to translate into a positive European open this morning with the main focus expected to be on a whole host of services PMI readings for July," says Hewson.

Ahead of the UK equity market open Tuesday, the FTSE 100 is called to open modestly higher, having closed at 6,677.52 on Monday. IG and CMC Markets expect the blue-chip index to open up around 11 points at approximately 6,688, while Alpari calls for it to open just fractionally higher at around 6,678.

"European markets are hoping to post a broadly more positive start to Tuesday than has been provided by the Asian outlook which has been dragged down by a disappointing services PMI number out of China," says Joshua Mahony, a research analyst at Alpari.

The latest survey from Markit Economics revealed that the Chinese service sector slid to no change in July, coming in with a score of 50.0, down from June's reading of 53.1. A score below 50.0 signals contraction in a sector, while a reading above 50.0 indicates expansion.

"Both the new business and outstanding business indices declined from their levels in June," says Hongbin Qu, chief economist, China and co-head of Asian Economic Research at HSBC. "The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities as property related activity, such as agencies and residential services, see less business," he adds.

The services sector in Japan, however, swung to expansion in July. The nation's Markit services PMI came in with a score of 50.4, up from the 49.0 posted in June.

Nevertheless, following the disappointing Chinese data and ahead of the UK equity market open, the Nikkei in Tokyo has fallen 1%, the Hang Seng is down 0.3%, and the Shanghai Composite index is down 0.6%.

Still to come in the data calendar Tuesday, the latest reading of the Italian Markit services PMI, which is released at 0845 BST, is expected to come in at 54.0, fractionally higher than the 53.9 posted in June. The French equivalent, which is released at 0850 BST, is forecast to rise to 50.4 in July from June's reading of 48.2, while the German reading, due at 0855 BST, is expected to rise to 56.6 from 54.6.

For the wider eurozone area, the services PMI, released at 0900 BST, is expected to edge higher to 54.4 in July, up from the 52.8 recorded in the previous month.

"Whilst some of the major European countries are not as reliant upon the services sector as the UK, they still provide a significant chunk of growth and thus today’s reading will make key reading for those seeking to find the direction of European growth in the third quarter," says Alpari's Mahony.

The UK's reading of services PMI, released at 0930 BST, is expected edge up to 57.9 from 57.7.

Shortly after, eurozone retail sales data are released at 1000 GMT. Retail trade in the single currency bloc is expected to rise 1.2% year-on-year in June, following a 0.7% increase posted in May. On a month-on-month basis, retail trade is estimated to grow 0.4%, after remaining unchanged in May.

In the US, Markit services PMI data are published at 1445 BST, shortly before the Institute for Supply Management's non-manufacturing PMI reading and factory orders information at 1500 BST.

In the forex market, ahead of the latest tranche of macroeconomic data and the UK equity market open, the pound trades at USD1.6865, EUR1.2565, CHF1.5292, and JPY172.906. The euro trades at USD1.3422.

In the corporate calendar, FTSE 100-listed Aggreko, Fresnillo, Meggitt, and Standard Life have been joined by FTSE 250-constituents Inmarsat, BBA Aviation, and Rotork in releasing half-year results Tuesday

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Source: Alliance News

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