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LONDON (Alliance News) - UK equities are expected to open higher Thursday, following a higher close on Wall Street on Wednesday and a positive session in Asia overnight, with investors trying to look past Wednesday's disappointing US first quarter gross domestic product reading and instead focus on the future.
Final figures from the US Bureau of Economic Analysis Wednesday showed that the US economy contracted by 2.9% in the first-quarter of 2014, revising down the previous estimate of a 1.0% contraction and erasing all of the 2.6% growth recorded in the fourth-quarter of 2013. Hurt by historically cold winter weather, it was the worst quarter for the US economy since the first quarter of 2009.
However, this was not enough to force US stocks lower for a third consecutive day and, following the release a better-than-expected Markit PMI reading for June, which raised hopes of a strong bounce back in the second-quarter, Wall Street closed firmly in the black.
The US Markit service sector PMI surged to 61.2 in June from 58.1 in May, recording the sharpest rise in activity since the survey began in October 2009.
"This services data prompted a couple of banks to revise their second quarter forecasts for GDP up to 4%, but given that at least one of these banks had first quarter GDP tracking at 2.8% earlier this year one has to question how much more accurate these new assessments will be," says Michael Hewson, chief market analyst at CMC Markets.
On Wall Street, the DJIA closed up 0.3%, the S&P 500 up 0.5%, and the NASDAQ Composite up 0.7%.
"This rebound in US markets should translate into a positive European open this morning, though any upside is likely to remain constrained by concerns about events in Iraq," says Hewson.
Indeed, "with the first quarter figure well behind us and almost completely attributed to irregular weather conditions, this drop of 2.9% has been regarded as something which has little reflection over the true path of the US economy. As such, the US optimism despite such a reading has also led Asian and now European markets to also take on a more optimistic outlook today," says Joshua Mahony, a research analyst at Alpari.
In Asia, ahead of the UK equity market open, the Hang Seng is up 0.9%, the Shanghai Composite index is up 0.7%, while the Nikkei in Tokyo has closed up 0.3%.
The UK's FTSE 100 is set to open modestly higher Thursday, having closed at 6,733.62 on Wednesday. IG and Alpari both indicate the blue-chip index to open approximately 11 points higher at around 6,745, while CMC Markets expects it to open even higher at 6,751.
In the data calendar Thursday, June's reading of French consumer confidence is released ahead of the UK equity market open at 0745 BST.
Bank of England Governor Mark Carney delivers the central bank's financial stability report at 1030 BST. The report, born out of discussions at the recent Financial Policy Committee meeting, will be closely watched by investors for any mention of, or indeed recommendations to, contain asset bubbles or other risks to the UK's economic recover.
UK house price inflation is likely to be in focus, with the FPC able to recommend changes to the controversial Help to Buy housing scheme if it sees fit, while disappointing business lending data may also have been discussed.
"Following the introduction of the Mortgage Market Review, the markets will be watching to see whether the FPC put forward other recommendations to address possible exuberance at the top end of the housing market, mostly targeted at London," says Nikesh Sawjani, UK macroeconomist at Lloyds Bank. "Some lenders have already announced limits on high value mortgage multiples, although recent hints from the chancellor and the governor suggest other measures may be forthcoming," he adds.
In the US, personal consumption and spending data are released at 1330 BST, at the same time as weekly initial jobless claims information. President of the Richmond Federal Reserve Bank Jeffrey Lacker gives a speech at 1330 BST, while President of the Federal Reserve Bank of St. Louis speaks at 1805 BST.
Thursday also marks the beginning of the European Council meeting in Brussels.
In corporate news, soon-to-be-merged FTSE 250-constituents Dixons Retail and Carphone Warehouse Group have both released full-year results ahead of the UK equity market open Thursday. Also in the mid-cap index, DS Smith has released full-year results, while John Wood Group has provided a trading update.
Standard Chartered is scheduled to release a trading statement at 0915 BST.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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