(Alliance News) - Stocks in London are set to stage a slight recovery on Wednesday, with investors encouraged by some better-than-expected Chinese factory data.
Focus in the day ahead lies on eurozone inflation, ahead of the European Central Bank's interest rate decision next week.
"Headline inflation will likely rise above the 9% mark, despite policy measures to stem the rise in prices. With underlying inflation pressures still broadening and the latest increase in energy commodity still to feed through, an inflation peak in the euro area is not yet in sight, keeping the pressure on ECB to front-load monetary tightening," said Danske Bank.
IG says futures indicate the FTSE 100 index of large-caps to open up 13.77 points, or 0.2%, at 7,375.40 on Wednesday. The FTSE 100 closed down 65.68 points, or 0.9%, at 7,361.63 on Tuesday.
Out early Wednesday, official data showed China's factory activity shrank in August for the second month in a row. However, the contraction was not as bad as feared.
The purchasing managers' index, a key gauge of manufacturing in the world's second-biggest economy, came in at 49.4 points, up from July's 49.0 but still below the 50-point mark separating growth from contraction, National Bureau of Statistics data showed. The figure beat the consensus forecast, according to FXStreet, of 49.2.
China's non-manufacturing PMI came in at 52.6 points in August, down from 53.8 in July, NBS data showed, but again topping consensus, which had sat at 52.2.
In Asia on Wednesday, the Japanese Nikkei 225 index was down 0.5%. In China, the Shanghai Composite was flat, while the Hang Seng index in Hong Kong was up 0.6%. The S&P/ASX 200 in Sydney was down 0.3%.
In the US on Tuesday, Wall Street ended lower, with the Dow Jones Industrial Average ending down 1.0%, the S&P 500 down 1.1%, and the Nasdaq Composite down 1.1%.
Stocks in New York were hit by some better-than-expected US economic data, heightening fears that the Federal Reserve may have more room to tighten monetary policy.
American consumers were much happier about the state of the economy in August, as worries about surging prices eased, according to a closely watched survey released Tuesday. After three months of declines, the consumer confidence index jumped nearly eight points to 103.2 in August from 95.3 in July, the Conference Board said.
"Yesterday's improvement in US economic data appears to have reinforced the expectation that the resilience of the US economy is likely to mean that the Fed will be a lot less cautious, when it comes to further tightening monetary policy when it meets next on 21st September, when it could well go for its third successive 75bps rate hike, as it looks to drive inflation back down again," said Michael Hewson, chief market analyst at CMC Markets.
Sterling was quoted at USD1.1686 early Wednesday, higher than USD1.1662 at the London equities close on Tuesday.
The euro traded at USD1.0039 early Wednesday, rising from USD1.0022 late Tuesday. Against the yen, the dollar eased to JPY138.43 from JPY138.75.
Gold was quoted at USD1,724.30 an ounce early Wednesday, slightly below USD1,725.60 late on Tuesday.
Brent oil was trading at USD100.1 a barrel early Wednesday, a touch higher than USD99.99 late Tuesday but still below a peak above USD105 seen earlier this week.
The international economic calendar on Wednesday has German import prices and unemployment alongside France inflation data. At 1000 BST, there are eurozone inflation figures, then at 1315 BST there are US ADP employment data.
The next ECB rate decision is on Thursday next week.
The UK corporate calendar on Wednesday has interim results from Bank of Cyprus, BBGI Global Infrastructure, Irish hotel operator Dalata Hotel Group, and insurance company Chesnara.
By Lucy Heming; lucyheming@alliancenews.com
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