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LONDON (Alliance News) - UK stocks are set to open fractionally lower Wednesday, after the FTSE 100 reached a fourteen-year high on Tuesday and as investors await the latest insights on both the health of the UK economy and the timing of the first interest rate rise when the Bank of England presents its quarterly inflation report at 0930 GMT.
The FTSE 100 closed at its highest level since 2000 on Tuesday, at 6,873.08, as a dearth of fresh headlines out of Ukraine allowed investors to contemplate the potential for further monetary easing by central banks in China and Europe.
"This optimism was reinforced during the day on reports that the German Bundesbank was prepared to rip up decades of fiscal orthodoxy and back negative deposit rates and purchases of packaged loans," said CMC Markets chief market analyst Michael Hewson.
There's been no UK data released so far this week, but Wednesday's economic focus is squarely on the UK economy, with the latest unemployment and average earnings numbers due at 0830 GMT, ahead of BoE Governor Mark Carney's speech at 0930 GMT.
Ahead of the data, spread betters are indicating that the FTSE 100 will open fractionally lower at 6,868.
The UK claimant count is expected to fall to 30,000 in April from 30,400 in March, leading to a further tick down in the three-month rolling unemployment rate to 6.8%, from 6.9%, which would bring the rate comfortably below the BoE's original forward guidance threshold of 7.0%.
"That would further increase pressure on the BoE to change its 'don?t just do something, sit there!' monetary policy stance earlier than the previously assumed first half of 2015 when it releases its Quarterly Inflation Report today," said Rabobank analyst Michael Every.
The BoE's expected time line for the first UK interest rate hike has already shifted once, to the second half of 2015 from the original prediction of some time in 2016. Due to the faster-than-expected economic recovery in the UK, many commentators are now expecting that to be brought forward again, with a rate rise starting to look possible before next year's May general election.
"With the MPC no longer constrained by its initial forward guidance, today?s report will be scrutinised for clues on the timing of the first rise in the policy rate," says Lloyds Bank UK macroeconomist Nikesh Sawjani.
The report will also be closely watched for the central bank's thoughts on the raging UK housing market, particular any suggestion that it may intervene in the governments Help to Buy scheme. This may be especially true in light of the boost provided to equities by the housebuilders on Tuesday after Taylor Wimpey increased its financial targets on the back of a much stronger housing market than originally expected.
The UK average earnings numbers, also out at 0830 GMT, are expected to show growth inclusive of bonuses of 2.1% annually in the three months to April, up from 1.7% in February. With UK CPI currently at 1.6%, this would represent an important acceleration in real wages, although excluding bonuses, wages are expected to remain slightly behind CPI, rising to 1.5% in March from 1.4% previously.
Data already released Tuesday has confirmed that consumer prices in Europe's largest economy are falling, with German CPI recording a drop of 0.2% month-on-month in April, reversing the rise of 0.3% in March. The harmonised index, preferred for forecasting by the European Central bank showed prices fell by 0.3% in April, reversing the 0.3% rise in March.
Year-on-year, prices rose by 1.3%, and 1.1% on a harmonised basis. The numbers were in line with economists expectations and will have done little to change the growing market expectation for the European Central Bank to pull the trigger on further policy loosening next month.
French and Spanish CPI numbers are also due at 0645 GMT and 0700 GMT respectively, while eurozone industrial production data are due at 0900 GMT. Industrial production is expected to have expanded at 1.0% year-on-year in March, slower than the 1.7% growth recorded in February.
In the UK corporate calendar Wednesday, full-year results have already been release from British Land Co, ICAP, and 3i Group. Interim management statements are out from Admiral Group, ITV, and Premier Oil.
Ahead of the market open, with trading likely to remain subdued until the UK data, the pound trades at USD1.6860. The euro is slightly up from the six-week low against the dollar made Tuesday, currently at USD1.3720.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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