LONDON (Alliance News) - Equities in London are expected to open flat to marginally lower Thursday, having posted significant gains on Wednesday, with a raft of corporate news and US macroeconomic data set to be in focus.
IG and CMC Markets both call the FTSE 100 to open down around 10 points at around 6,820, having closed up 1.1% at 6,830.27 Wednesday, while OANDA indicates that the UK's blue-chip index will open down just two points at around 6,828.
"Yesterday?s late surge in US and European markets saw between two and three days of losses wiped out in a single stroke, as talk of some form of Greek conditional cash for reforms deal started doing the rounds," says Michael Hewson, chief market analyst at CMC Markets.
German Chancellor Angela Merkel's government may be satisfied with Greece committing to at least one economic reform sought by creditors to open the door to bailout funds, Bloomberg reported Wednesday citing two people familiar with Germany?s position.
The report said that while the German government still insists on a package of steps that includes higher taxes, state asset sales and less generous retirement benefits, they may settle for a clear commitment by the Greek government to a measure up front to unlock aid, said the people, who asked not to be identified discussing the government?s negotiating stance.
"While the story was denied soon after its initial circulation it does appear that there might be progress behind the scenes, otherwise why would the [European Central Bank] raise its [Emergency Liquidity Assistance] ceiling once again, this time by another EUR2.3 billion," Hewson says. "Whatever is agreed, assuming anything is, it is clear that Greece will have to give some ground and there is speculation it could be on the primary surplus target," he adds.
The flat to lower open in the UK is expected despite strong gains on Wall Street after the UK equity market close on Wednesday, with the DJIA, NASDAQ Composite and S&P 500 all closing up between 1.2% and 1.3%. In Asia, meanwhile, the Shanghai Composite index is modestly lower ahead of the London stock market open, with the Hang Seng index up 0.6% and the Nikkei up 1.5%.
In data recently released, figures from the National Bureau of Statistics of China showed that Chinese industrial production growth improved slightly in May, coming in fractionally above economists' expectations, while retail sales growth accelerated as expected
Industrial production grew 6.1% year-on-year in May, following a 5.9% gain in April and ahead of the 6.0% climb economists had been expecting. Retail sales, meanwhile, increased a price-adjusted 10.1% in May, in line with expectations and marginally faster than previous month's 10% growth.
"Over the past few months it has become increasingly apparent that domestic demand remains weak, with cuts to a range of fuel prices by the Chinese NDC earlier this week, reinforcing that narrative," says CMC's Hewson. "Today?s retail sales numbers for May have done nothing to dispel the weak consumption picture even though they did improve slightly," he adds.
The data comes just a day after the People's Bank of China lowered its inflation forecast for the world's second largest economy to 1.4%, down from the previously forecast 2.2%. Its GDP estimate, meanwhile, was lowered to 7% from 7.1%.
Meanwhile, the World Bank has downgraded its global growth outlook as developing countries face a series of tough challenges in 2015. The global economy is expected to expand 2.8% instead of the 3% estimated in January, the bank said in its Global Economic Prospects report recently released. For next year, growth is forecast to improve to 3.3% and then 3.2% in 2017.
Still ahead in the economic calendar Thursday, US retail sales data for May are released at 1330 BST. According to FXStreet.com, economists' expectations are for a 1.1% rise month-on-month in May, having come in unexpectedly flat in April. Excluding autos, retail sales are forecast to rise 0.7%, following a 0.1% increase in the previous month.
"US retail sales data for May will be closely watched as the final bellwether release in advance of the [Federal Open Market Committee] meeting on 17 June," says Michael Sawicki, senior economist at Lloyds Bank. "Of particular interest will be signs that US consumption expenditure is beginning to benefit from lower oil prices and income gains underpinned by solid job growth, after a soft patch over the first quarter," he adds.
The US Labor Department is scheduled to publish its jobless claims report for the week ended June 5 at the same time. Later on, US import and export data are released at 1430 BST, with US business inventories information due shortly after at 1500 BST.
In the forex market, ahead of the UK equity market open, the pound trades at USD1.5487, EUR1.3686, JPY190.890 and CHF1.4410. The euro, meanwhile trades at USD1.3130.
In corporate news, Chancellor George Osborne is to begin selling the UK's 80% stake in Royal Bank of Scotland Group after both the Bank of England and banking group Rothschild signalled that the time has come to initiate the lender's return to full private ownership.
Delivering his annual speech at Mansion House in London on Wednesday, Osborne said that kicking off the sale of the government's stake six years since completing the injection of GBP45.5 billion into the bank is the "right thing" to do. The Chancellor's speech had been highly anticipated by a wide range of stakeholders, including bankers, investors and taxpayers, who had been waiting to hear about his plans for the RBS stake and the bank levy imposed on banks in 2011.
While Osborne provided details about selling the RBS stake, his speech did not include explicit reference to the levy, which has been seen to have played a part in HSBC Holdings's decision to review whether to relocate its global headquarters from London, although the Chancellor said that making Britain the "best place" for the headquarters of European and global banks is in the national interest. The levy has been seen to disproportionately affect HSBC and fellow Asia-focused lender Standard Chartered as it is imposed on global balance sheets and not just in the UK.
Meanwhile, the UK government early Thursday said it had raised GBP750 million by selling a further 15% stake in Royal Mail for 550 pence a share, significantly more than it got per share when it first floated the mail operator in a criticized initial public offering nearly two years ago.
The Department for Business, Innovation & Skills had announced Wednesday that it would be selling half its remaining 30% stake in Royal Mail in an accelerated bookbuild.
The sale means the UK government is left with 149.9 million Royal Mail shares, a 15% stake. Chancellor of the Exchequer George Osborne later said a 1% stake of the remaining 15% would be gifted to the company's staff. Staff took a 10% stake in the initial IPO.
Royal Mail's shares closed at 516.50p Wednesday.
Elsewhere, Home Retail Group has reported a drop in total sales in both its Argos and Homebase businesses in the first quarter of its financial year, but a rise in like-for-like sales in Homebase as it continues with its 'Transformation Plan' and store-closure programme.
The owner of the Argos electronics and general merchandise chain and the Homebase DIY chain said that total sales in Argos declined 2.6% to GBP846 million in the 13 weeks to May 30, as like-for-like sales fell 3.9%. It said this was due to a decrease in electrical product sales, principally driven by market declines in TVs, computers and tablets.
Total Homebase sales decreased 1.6% to GBP438 million, but like-for-like revenue was up 5.4% in the period, which Home Retail said was helped by sales growth across big ticket, seasonal and the remaining product categories, partly supported by both the trade transfer and the stock clearance sales as part of its distribution centre and store closure programme.
Also of note, UK blue-chips Vodafone Group, BAE Systems and Johnson Matthey are joined by mid-caps Cineworld Group, Worldwide Healthcare Trust, Big Yellow Group, British Empire Securities & General Trust, Edinburgh Investment Trust, Intermediate Capital Group, LondonMetric Property, Shaftesbury, Victrex and Booker Group, amongst others, in going ex-dividend Thursday, meaning new buyers no longer qualify for the latest dividend payout.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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