LONDON (Alliance News) - UK stocks are set to open lower Friday as investors gear up for an important US jobs report later in the day which will help market participants to determine the likelihood of a US interest rate hike at the Federal Reserve's September meeting.
At 1330 BST, the US Department of Labor will release nonfarm payroll, unemployment and wages data. The nonfarm payrolls number is expected to show 220,000 jobs were created in August, slightly higher than the 215,000 in July. The unemployment rate is expected to drop to 5.2% from 5.3% in July, while average hourly earnings are expected to grow 0.2% month-on-month, matching the growth seen in July.
Heightened emphasis will be placed on the August jobs report after the Fed said in the minutes of its July policy meeting that it "anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the US labour market and is reasonably confident that inflation will move back to its 2% objective over the medium term".
Analysts at Nomura expect nonfarms to show another gain of over 200,000, pushing the US labour market towards full employment and keeping the Fed on track for raising rates this year. However, the analysts think that the pressures on inflation will see the Fed hold off until December.
"With core inflation losing some upward momentum in recent months and 'some' [Federal Open Market Committee] participants raising concerns about the inflation outlook, we believe that the Committee will want more evidence that inflation is moving in the right direction before raising interest rates, supporting our call for lift-off in December," Nomura says.
IG says futures indicate the FTSE 100 to open lower at 6,129.8. The index closed up 1.8% at 6,194.10 on Thursday, cheered by a doveish press conference by European Central Bank President Mario Draghi in which he said the central bank stands ready to act again to spur growth and inflation in the eurozone.
The ECB maintained it has "a willingness" to act using all the tools at its disposal to meet its annual inflation target of just below 2%, including adjusting "the size, composition and duration" of its EUR1.1 trillion monetary stimulus programme, Draghi told a press conference after the ECB maintained all of its key interest rates unchanged.
Weak inflationary pressures, along with renewed economic and market tensions triggered by the slowdown in China, have increased the pressure on the ECB to consider launching more action to head off the threat of deflation.
Draghi said the ECB was revising down its 2015 inflation forecast to near zero, warning that consumer prices could fall back into negative territory because of slumping oil prices.
The Frankfurt-based central bank also trimmed its euro-area growth projection for the year to 1.4% from 1.5% previously, as demand from the world's leading emerging economies, notably China, contracts.
UBS economist Reinhard Cluse says the Swiss bank's base-case scenario is that the ECB will continue to run its quantitative easing programme until September 2016, followed by some form of tapering.
"Yet given the likely delayed return of inflation to the target of 'close to, but below 2%', we see a growing risk that the ECB might have to run QE for longer than previously assumed," Cluse says. "Nevertheless, we do not expect substantial changes to the QE programme in the short term, as we regard big shocks from China/EM as a risk scenario, but not the base-case scenario."
Daiwa Capital believes that the central bank's quantitative easing programme will be extended beyond September 2016, given its lower estimates for inflation and growth due to concerns about emerging markets and oil prices.
"With Draghi acknowledging that the risks to the outlook are skewed to the downside, we now expect the Governing Council in due course to agree to extend QE beyond September 2016. Although we expect the monthly asset purchase target to be maintained at EUR60 billion per month, an increase in this pace might also become difficult to resist if the economic outlook markedly deteriorates," say economists at Daiwa.
Ahead of the US data, eurozone GDP will be in focus at 1000 BST. The reading is expected to show a 1.2% rise year-on-year in the second quarter, matching the preliminary estimate and slightly accelerating from the 1.0% growth seen last quarter. On a quarterly basis, GDP is expected to inch up 0.3% compared to the 0.4% rise in the first quarter.
Wall Street closed mostly higher on Thursday. The DJIA and the S&P 500 both closed up 0.1% while the Nasdaq Composite ended down 0.4%.
In Asia, the Japanese Nikkei closed down 2.2%. Hong Kong returned to trade after a holiday on Thursday and the Hang Seng index trades down 0.7%. Shanghai remains closed to celebrate the 70th anniversary of China's victory over Japan in the Second World War.
In a quiet morning on the UK corporate front, GVC Holdings secured a recommendation for its takeover bid for Bwin.Party Digital Entertainment, leaving the agreement reached by 888 Holdings to merge with Bwin in tatters.
GVC said the Bwin board has agreed to its takeover offer of 25 pence in cash and 0.231 GVC shares per Bwin share, valuing the FTSE 250-listed gaming company at around GBP1.12 billion, or 129.64 pence per share.
GVC said the offer is a 12.5% premium to Bwin's closing share price on Thursday and a 45% premium to the value of Bwin shares on May 14, when GVC and 888 first entered talks to acquire the business.
Bwin confirmed on Friday that it has terminated its agreement with 888.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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