News Column

MARKET COMMENT: UK Stocks Set To Open Higher Ahead Of Central Banks

August 6, 2014

Jon Darby

LONDON (Alliance News) - UK stocks are set to open fractionally higher Thursday, following a heavy sell-off on Wednesday and ahead of decisions from UK and European central bank meetings.

Futures indicate that the FTSE 100 will open about 4 points higher at 6,640.

Stocks across Europe lost significant ground on Wednesday amid concerns about an escalation of tensions between Russia and Ukraine amid an apparent build up of Russian troops on the border. Russian President Vladimir Putin also hit back against EU and US sanctions by imposing a ban on the importation to Russia of agricultural products from any nation applying sanctions.

While European markets, which will be most affected by a continued fall-out with Russia, closed significantly lower, US markets were able to stabilise Wednesday, with the DJIA closing fractionally higher at 16,443.34, and the S&P 500 closing flat at 1,920.24.

A mixed session in Asia on Thursday has seen the Nikkei close up 0.3%, while the Hang Seng continues to trade 0.5% lower and the Shanghai Composite 0.7% lower.

The main market focus Thursday will be on the European Central Bank's August policy decision announcement at 1245 BST, which will be followed by President Mario Draghi's usual press conference at 1330 BST.

Two months ago the ECB brought in the extraordinary measure of negative deposit rates, along with a raft of other easing measures, in an effort to weaken the euro, ease deflationary pressure, and boost economic growth across the Eurozone. Since that time, eurozone inflation has fallen even further to 0.4% in July, its lowest level since the height of the financial crisis, while data released on Wednesday showed that the third biggest economy in the block, Italy, slipped back into recession in the second quarter.

Early data from German Thursday has shown industrial production grew by less than expected in June. Production grew by 0.3% month-on-month, reversing a bit of the 1.7% fall in May, but considerably missing economist expectations for growth of 1.3%.

The ECB's saving grace is that the euro has now started to weaken against other major currencies, including the pound and the dollar, although it is debatable whether this is due to the measures introduced by the ECB two months ago or just heightened rate-rise expectations in both the UK and the US. Ahead of the equity market open Thursday, the euro trades at USD1.3375 and GBP0.7942.

Given that only two months have passed since the latest ECB policy shift, it's unlikely that any further change will be announced Thursday, but Draghi will be probed at the press conference for answers as to how much more economic weakness the central bank can handle before making another move, particularly as the eurozone's traditional growth driver, Germany, seems likely to suffer the brunt of the economically damaging sanctions being placed on Russia.

Ahead of the ECB, the Bank of England will announce its own policy decision, although it's highly unlikely there will be any shift of policy, and investors will have to wait for a couple of weeks before the thoughts of the Monetary Policy Committee, including of new member Nemat Shaflik, are revealed in the release of the meeting minutes.

In the UK corporate calendar Thursday, interim results have been released from insurers Old Mutual, Aviva, and RSA Insurance, as well as mining group Rio Tinto and paper producer Mondi. Interim numbers are also out from FTSE 250 listed AMEC and Enterprise Inns. RSA and AMEC have joined the growing list of UK names to cite the strong pound as hurting its international revenues.

The recently merged UK electronics retailers Dixons Retail and Carphone Warehouse Group start trading Thursday under their new name Dixons Carphone.

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Source: Alliance News

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