LONDON MARKET COMMENT: Stocks Seen Soft; UK To Start RBS Sale

LONDON (Alliance News) - UK stocks are set to open flat to slightly lower Thursday as investors pause for breath following a late rally on Wednesday.

"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 FTSE 100 is called to open flat to fractionally lower Thursday, having closed up 1.1% at 6,830.27 on Wednesday. OANDA expects the UK's blue-chip index to open approximately 2 points lower at around 6,828, while CMC Markets and IG call it to open slightly lower at around 6,820.

The flat to lower open is expected despite strong gains posted on Wall Street overnight, where the DJIA, S&P 500 and NASDAQ Composite all closed up by between 1.2% and 1.3%. In Asia, ahead of the UK equity market open, the Shanghai Composite index trades flat, while the Hang Seng and Nikkei are up 1% and 1.5%, respectively.

In data recently released, Chinese retail sales increased 10.1% year-on-year in May, coming in fractionally above the 10% growth seen in the previous month and in line with economists' expectations.

"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 China's central bank cut its inflation projection for the current year and lowered its growth forecast slightly.

On Wednesday, 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. Economists' expectations, according to FXStreet.com, are for initial jobless claims to come in at 277,000, marginally higher than the 276,000 posted for the previous week.

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, sterling trades at USD1.5485, EUR1.3706, JPY190.860 and CHF1.4444. The euro, meanwhile trades at USD1.3000.

In corporate news, the UK government late Wednesday announced plans to sell around half of its remaining stake in FTSE 100-listed Royal Mail through a share placing, just days after Chancellor of the Exchequer George Osborne said the government would sell all its remaining 30% stake this year as part of its efforts to bolster its coffers.

The price of the placing will be determined via an accelerated book building process, the Department for Business, Innovation & Skills said. The placing is expected to comprise around 150 million shares, or around half the 30% stake the government has in the company. The 30% stake is currently valued at around GBP1.5 billion.

Details of the placing price and number of placing shares will be announced "in due course", it said. However, in his annual speech at Mansion House in London, Chancellor Osborne said that a 1% stake will be offered to Royal Mail workers

Meanwhile, in his Mansion House speech, Osborne said he will 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.

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.

Elsewhere, FTSE 250-listed WS Atkins and Halma are scheduled to publish full-year results ahead of the UK equity market open Thursday, while Home Retail Group and PZ Cussons are expected to release trading updates.

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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