MARKET COMMENT: UK Equities Seen Higher Ahead Of BoE Decision

LONDON (Alliance News) - UK stocks are set to open modestly higher Thursday as equities continue to bounce back from heavy selling earlier in the week.

Investors are digesting the release of the latest US Federal Reserve policy meeting minutes late on Wednesday and awaiting the Bank of England's interest rate and quantitative easing decisions later Thursday.

After posting some heavy losses on Monday and Tuesday, UK stocks ended in the black for the first time this week on Wednesday, and are expected to extend these gains on Thursday.

The positive open is expected after a strong close on Wall Street Wednesday, and a broadly positive Asian session overnight.

In the US, the DJIA and S&P 500 closed up 1.1%, while the tech-heavy NASDAQ Composite overturned some of its recent weaknesses to close up 1.7%. In Asia, ahead of the UK equity market open, the Nikkei in Tokyo has closed fractionally higher, while the Hang Seng is up 0.8%, and the Shanghai Composite index is up 1%.

The gains followed the release of the minutes from the March 18-19 US Federal Open Market Committee policy meeting.

"By and large, the minutes convey the ?dovishness? that most investors expected going into the March 19 meeting," says CitiFX Wire's Nishtha Asthana.

It was Yellen's more-hawkish-than-expected comments at the press conference that followed that meeting in March that sparked speculation of an US interest rate rise as soon as the second quarter of next year.

These fears were somewhat allayed in the minutes released Wednesday, as it came across "that officials were in no hurry to raise rates, irrespective of what their respective dot charts might show," says Michael Hewson, chief market analyst at CMC Markets.

Investors have "been surprised both ways now," says Steven Englander, global head of G10 FX strategy at CitiFX Wire. "On March 19 by the hawkishness of the Fed and Yellen, and now by the indications in the minutes that the Fed did not mean that hawkishness," he adds.

Both IG and CMC Markets predict the FTSE 100 to open slightly higher at approximately 6,650 points, having closed at 6,635.61 on Thursday.

The gains are expected despite yet more weaker-than-expected Chinese data Thursday.

China's exports and imports declined unexpectedly in March, adding to evidence that suggests that the economy is struggling to achieve its targeted growth.

While their rate of decline slowed from the 18% slump posted in February, export shipments dropped 6.6% year-on-year in March, missing expectations for a 4% increase. Imports dipped 11%, reversing the 10% growth seen in February and in contrast to the 3.9% rise forecast by economists.

In the data calendar Thursday, "the domestic focus will be April's Monetary Policy Committee announcement," says David Page, senior UK macroeconomist at Lloyds Bank.

The Bank of England is set to retain its record-low interest rate and monetary stimulus unchanged as policymakers await more signs of a sustained recovery.

With the central bank noting in the February Inflation Report that inflation is falling faster and the slack in the labour market is being used up more slowly than the MPC expected, the decision to leave the bank rate on hold at this month's meeting should be straightforward, said Samuel Tombs, a UK economist at Capital Economics.

The expectation is for the MPC to hold its key bank rate at 0.5% and quantitative easing at GBP375 billion.

"This should be no surprise, given the continued resilience of the latest economic data and this week?s growth upgrade from the International Monetary Fund," says Hewson. However, the "continued rise of the pound is likely to give cause for concern amongst some bank officials, so it wouldn?t be beyond the realms of possibilities if the Bank were to be concerned about this, along with heightened rate expectations," he adds.

Ahead of the decision, the pound trades at USD1.6790, EUR1.2125, JPY170.828 and CHF1.4771.

Later in the day, in the US, import and export price index data are expected at 1230 GMT, at the same time as weekly jobless claims numbers. The monthly US budget statement is released at 1800 GMT.

In corporate news, after the close of the UK equity market Wednesday, Royal Bank of Scotland Group revealed that it has reached an agreement with the UK government over the future retirement of the dividend access share, in a move that marks an important step for the bailed out bank to resume paying dividends and return to private ownership.

Under the agreement, RBS will pay the Treasury an initial GBP320 million in 2014 in order to remove the dividend access share, a key part of the government's GBP25.5 billion capital injection in 2009. A further GBP1.18 billion payment will be required to retire the dividend access share, RBS said. It will be payable in one or more dividends.

Ahead of the UK equity market open Thursday, FTSE 100-listed Marks & Spencer has released a trading update, while FTSE 250-list Ashmore Group, Hays and 888 Holdings have all released interim management statements. Vedanta Resources has released fourth-quarter results, WH Smith has published full-year results, and Oxford Instruments has released a trading statement.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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