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LONDON (Alliance News) - UK stocks are expected to follow their US and Asian counterparts lower Wednesday, as investors look to shed risk assets amid fresh concerns over the Ukrainian crisis.
Wall Street closed firmly lower on Tuesday, with Asian stocks following suit overnight, after a renewed build up of Russian troops on Ukraine's border raised fears of a possible invasion.
"The return of risk aversion driven by geopolitical factors never seems to be too far away, and this time it has been driven by the announcement by Poland that it has noticed a significant build-up of military presence of the border between Russia and Ukraine," says Joshua Mahony, a research analyst at Alpari.
Poland's Foreign Minister Radoslaw Sikorski said that Russian President Vladimir Putin could invade eastern Ukraine if Ukrainian forces continue to have success in their fight against pro-Russian separatists. On Tuesday, Ukraine said its forces were preparing to take control of the rebel-held cities of Donetsk and Luhansk, where the humanitarian situation was rapidly deteriorating according to local authorities.
Sikorski's comments came on the heels of news that Putin has ordered his government to draft a response to US and European sanctions.
"It almost beggars belief that a mere couple of days after commemorating 100 years since the start of World War One, that a leader in Europe and a Russian one at that, would even contemplate raising tensions to such an extent that another conflict could be even possible," says Michael Hewson, chief market analyst at CMC Markets. "With each escalation of this crisis the scope for any type of misstep increases exponentially, and that remains a real concern," he adds.
In the US Tuesday, fears over the crisis saw the DJIA, NASDAQ Composite, and S&P 500 closed down 0.8%, 0.7%, and 1%, respectively.
Similarly, in Asia, prior to the UK equity market open, the Nikkei in Tokyo has fallen 1.1%, while the Hang Seng trades down 0.3%, and the Shanghai Composite index is fractionally lower.
"With Russia poised to ?pressure or invade? Ukraine, along with a raft of retaliatory measures being aimed at European and US interests, it is not hard to see why the markets are seeing such weakness in the past 24 hours," says Mahony
Negative sentiment is set to roll into the UK session Wednesday. Ahead of the UK equity market open, IG and Alpari indicate that the FTSE 100 will open down approximately 44 points at around 6,638, after it closed at 6,682.48 on Tuesday, while CMC Markets calls it to open even lower at 6,637.
In data just released, German factory orders were shown to have declined sharply in June as both domestic and foreign orders decreased from prior month. Factory orders were down by an adjusted 3.2% month-on-month in June, having fallen by 1.6% in May. Economists had forecast a 1.0% increase for June.
Still to come in the data calendar Wednesday, the UK Halifax house price index for June is due to be released at 0800 BST. The index can be volatile and in May recorded a month-on-month drop of 0.6%.
The jury is still out on whether the new Prudential Regulation Authority-imposed lending rules have caused just a temporary or more long-term dip in UK mortgage lending, and while any further house price moderation may be good new for first-time buyers, it would be bad news for London's listed housebuilders.
Shortly after at 0930 BST, UK industrial and manufacturing production data will provide the domestic data focus. Both measures are expected to show a turnaround in June from a slump in May, with 0.6% month-on-month growth expected in both. On a year-on-year basis, industrial production is forecast to have grown 1.5% in June, compared with 2.3% in May, while manufacturing production is expected to to have grown 2.1%, compared with May's reading of 3.7%.
Following the production data, the UK GDP estimate from the National Institute of Economic and Social Research for the three months to July will be published at 1500 BST. In the three months to June the institute estimated that the UK grew by 0.9%.
Otherwise it's a relatively quiet day in the economic calendar, with little due from the US apart from MBA mortgage applications at midday and the US trade balance at 1330 BST.
In the forex market, the euro fell against its major rivals in the wake of the weaker-than-expected German factory orders numbers. In the run up to the UK equity market open, the single currency trades at USD1.3354, CHF1.2158, and JPY137.000. The pound trades at EUR1.2624.
In the corporate calendar, FTSE 100-listed Friends Life Group and Legal & General Group have been joined by FTSE 250-constituents Ferrexpo and Interserve in releasing half-yearly results. Meanwhile, mid-cap Grainger has published a trading update.
Blue-chip Standard Chartered is due to release half-yearly results at 0915 BST.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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