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LONDON (Alliance News) - UK shares are set to open considerably higher Friday after the Bank of Japan announced a surprise stimulus package overnight.
Futures indicate the FTSE 100 to open 80 points higher at 6,543.5. The index closed at 6,463.55 on Thursday.
The Bank of Japan expanded its quantitative easing unexpectedly as policymakers assessed it necessary to achieve the 2.0% inflation target even after a sales tax hike in April. In a 5-4 vote, the Policy Board led by Governor Haruhiko Kuroda decided to raise the monetary base at an annual pace of about JPY80 trillion. The earlier plan was to increase it by about JPY60-70 trillion.
The announcement came after consumer prices in the country slowed to a 3.2% annual growth in September, below expectations for 3.3%, which would have been unchanged from the August reading.
"The need for stimulus was a well-established and expected affair, but it was the timing of it which caught the markets offguard, with a Bloomberg survey finding only 3 of 32 economists expecting a move. A mix of big economic news, coming at a time when few market participant expect it, makes for a substantial move in the markets," says Joshua Mahony, research analyst at Alpari.
The Japanese Nikkei has closed 4.8% or 756 points higher in response to the extra stimulus. The effects have also rippled across Asia with the Hang Seng continuing up 1.0% and the Shanghai Composite trading up 1.2%.
The Japanese yen weakened against the other major currencies in the Asian session after the stimulus was announced. The yen fell to JPY110.68 against the US dollar for the first time since August 2008.
US trading had been strong on Thursday, the DJIA closed up 1.3%, the S&P 500 ended up 0.6%, and the Nasdaq Composite closed up 0.4%.
The European economy will be the focus for the rest of Friday morning, with preliminary readings of eurozone CPI being the highlight at 1000 GMT as investors fear possible deflation in the region.
German retail sales have already been released ahead of the London open. The month-on-month figure for September showed a 3.2% decline, missing economists' forecast of a 0.9% fall, and down from the revised figure of a 1.5% increase in August. Further weakness shown in the German economy may support shares further, as it could weaken the German government's and Bundesbank's resistance to calls for the European Central Bank to initiate quantitative easing.
On the corporate front, FTSE 100-listed WPP provided yet more evidence of the impact of a strong pound on earnings for multinationals, reporting a rise in revenue in the third quarter held back by the impact of currency translation.
The advertising group said revenue in the quarter to the end of September was up 3.1% to GBP2.76 billion, with revenue in dollar terms rising 10.8% to USD4.6 billion and gaining 10.9% euro terms to EUR3.5 billion. The impact of the strength of sterling was illustrated by the rise in its constant currency revenue of 10.6%, with like-for-like revenue rising 7.6%.
International Consolidated Airlines Group posted a rise in third quarter operating profit and revenue on a constant currency basis, with both British Airways and Iberia both performing well in the quarter. Operating profit for the group in the third quarter to September 30 was EUR900 million, up on the EUR690 million a year earlier. British Airways made an operating profit of EUR607 million, up from EUR477 million a year earlier. Iberia's operating profit rose to EUR162 million from EUR74 million.
There have also been corporate releases from Royal Bank of Scotland Group and Direct Line Insurance Group, while SuperGroup issued a profit warning due to the effects of the unseasonably warm weather in the UK in recent months.
Later on Friday is Italian unemployment figures and consumer prices at 0900 GMT and 1000 GMT respectively, followed by US income, consumption and spending data at 1230 GMT.
By Neil Thakrar; neilthakrar@alliancenews.com
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