MARKET COMMENT: UK Equities Set To Follow Asian, US Stocks Lower

Wed, 07th May 2014 06:43

LONDON (Alliance News) - UK stocks are set to follow their Asian and US counterparts lower Wednesday after the FTSE 100 snapped a five-day losing streak to close modestly lower on Tuesday.

Major European indices all closed in negative territory on Tuesday, with the FTSE 100 closing down 0.4%, the CAC 40 in Paris closing down 0.8%, and the DAX 30 in Frankfurt closing down 0.7%. The falls came despite a largely positive set of Markit services purchasing managers' index from around Europe and the UK.

"Good news appears to be getting lost in the fog of concerns about the deteriorating situation in the Ukraine, as fears grow of a civil war, as well as disappointment about the prospects for company earnings growth in a global economy that the OECD (Organization for Economic Cooperation and Development) saw fit to downgrade its expectations for yesterday," says Michael Hewson, chief market analyst at CMC Markets.

"With Chinese data showing no signs of a marked improvement, the catalysts for further gains seem to be becoming more difficult to find," Hewson adds.

In the latest data from China, the HSBC services purchasing managers' index, which was released overnight, continued to signal expansion within the sector in April, but at a slower pace than recorded in March. The services PMI came in with a score of 51.4 in April, slowing from the 51.9 posted in the previous month.

Ahead of the UK equity market open, the Shanghai Composite index is down 0.5%, the Hang Seng is down 1.3%, and the Nikkei in Tokyo is down 2.8%.

This follows on from a weak close on Wall Street on Tuesday, where the DJIA, NASDAQ Composite and S&P 500 all closed between 0.8% and 1.4% lower.

The FTSE 100 is called to open lower Wednesday. Both IG and CMC Markets indicate the blue-chip index to open approximately 22 points lower at 6,776, after it closed at 6,798.56 on Tuesday.

In data just released, German factory orders declined unexpectedly in March due to a sharp decrease in foreign demand. Factory orders fell 2.8% month-on-month in March, reversing the revised 0.9% rise posted in February, Destatis reported. Economists were forecasting 0.3% rise for March.

The euro edged slightly lower in the aftermath of the data, before quickly recovering. Ahead of the UK equity market open, the single currency trades at USD1.3922, while the pound trades at EUR1.2197.

Still to come in the data calendar Wednesday, French trade data is released at 0645 GMT. The US Mortgage Bankers Association releases its latest MBA Mortgage Applications report at 1100 GMT. The US Bureau of Labour Statistics releases its preliminary reading of first quarter nonfarm productivity and unit labour costs at 1230 GMT.

Shortly after, Federal Reserve Chair Janet Yellen gives a speech at 1400 GMT.

"Focus will be on the Chair?s views on the composition of the labour market and inflation, after first quarter GDP disappointed largely due to inclement weather and April non-farm payrolls rose by more-than-expected last week," says Carl Paraskevas, senior international macroeconomist at Lloyds Bank.

In corporate news, FTSE 100-constituent Rolls-Royce Holdings has agreed to sell its energy gas turbine and compressor business to Siemans AG for GBP785 million cash.

Meanwhile, FTSE 100-listed Meggitt, G4S and Legal & General Group have been joined by FTSE 250-listed JD Wetherspoon, Rightmove, and esure Group, amongst others, in releasing trading updates ahead of the UK equity market open.

Blue-chips J Sainsbury and Experian have released full-year results, while Imperial Tobacco Group has released half-year results.

Later on, HSBC Holdings is due to release at trading update at 0815 GMT.

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