LONDON (Alliance News) - UK stocks are set to open higher Friday, following the sharp market movements on Thursday that were prompted by the extraordinary announcements from the European Central Bank and ahead of the US non-farm payroll report due at 1330 BST.
The DJIA closed at an all-time high of 16,836.11 Thursday, while the S&P 500 made another record close at 1,940.46, both gaining about 0.6% on the day. A more mixed session in Asia on Friday has seen the Shanghai Composite fall 0.7%, and the Hang Seng lose 0.2%, while the Nikkei ended close to flat.
Spreadbetters are indicating that the FTSE 100 will take its lead from the US and open about 0.2% higher Friday. CMC Markets is calling the index to open 16 points higher, while Alpari is calling a 19 point rise at the open.
Following two weeks of relatively range-bound trading within financial markets, a certain amount of volatility returned on Thursday when the ECB became the first major central bank to introduce a negative deposit rate. In an attempt to stave off deflation and boost economic growth, the ECB said it will start charging banks 0.1% to park money with it. It also cut the main refinancing rate to 0.15% and announced a range of other unconventional measures.
Although a certain amount of what was announced had long been priced in by markets, the immediate reaction by investors was to sell the euro and send stocks higher, with major European indices in particular feeling the benefit. Indeed the German DAX broke above the 10,000 point level for the first time ever.
European stocks then consolidated a little from those highs, and stocks in the UK returned to almost exactly where they were before the announcements, with the FTSE 100 ending the day fractionally lower at 6,813.49.
"After a couple of hours to digest the information at hand, it appears the market is viewing the ECB?s actions as having met expectations for this meeting," says CMC Markets market analyst Jasper Lawler.
The most surprising reaction was in the euro, which turned sharply around after reaching a four-month low against the dollar just above USD1.35 to rally back up to a higher level than before the ECB announcement, giving an indication of how much had already been priced in. The single currency has continued to gain overnight and, ahead of the equity market open, trades at USD1.3660, currently showing little to German economic data just released.
Germany's traded surplus expanded to EUR17.7 billion in April, up from EUR15.0 billion in March, while industrial production in Europe's biggest economy grew by 0.2% month-on-month in April, reversing some of the 0.6% decline recorded in March, but only half the rise that had been expected by economists.
Markets may well return to their range-bound trading in the short-term, however, ahead of the monthly US non-farm payroll report, due for release at 1330 BST Friday. Economists are expecting the headline unemployment rate to rise slightly to 6.4% in May, from the 6.3% recorded in April, while an extra 218,000 are expected to have been added to the payroll, down from the very strong reading of 288,000 in April.
"What with the events of yesterday, many people would be forgiven for forgetting that today in fact marks the return of the US jobs report, meaning a similar rollercoaster ride of volatility could be just around the corner," says Alpari market analyst Joshua Mahony.
Ahead of the main economic event, UK trade balance data is due at 0930 BST. While the German numbers already released showed a healthy surplus there, the UK is expected to remain in a traded deficit of about GBP8.5 billion.
In the UK corporate calendar Friday, full-year results have been released from telecommunications group KCOM, as well as brewer Fuller Smith & Turner.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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Fuller Smith & Turner (FSTA)