MARKET COMMENT: UK Stocks Set For Muted Open Ahead Of Central Banks

Thu, 05th Jun 2014 06:43

LONDON (Alliance News) - UK stocks are set for a muted open Thursday, as investors await highly anticipated policy decisions from the Bank of England and the European Central Bank.

"The release of the BoE and more importantly the ECB monetary policy decisions will make for a crucial day in the markets which could determine sentiment for some time yet," says Joshua Mahony, a research analyst at Alpari.

The ECB policy decision is due at 1245 BST, and President Mario Draghi gives a press conference at 1330 BST. The consensus is that the central bank's base interest rate will be cut to 0.1%, from its current all-time low of 0.25%, as the bank tries again to fend off the threat of deflation and put a rocket under the currency zone's tepid recovery.

However, "there is also the possibility for unconventional measures," says Jasper Lawler, a market analyst at CMC Markets. "The two most likely to be used would be to stop the Securities Market Program sterilization and the reintroduction of Long-term Refinancing Operations," he says.

Long-term Refinancing Operations are used by the ECB to lend money at extremely low interest rates to eurozone banks, while the sterilisation of the securities market programme is used to ensure that the central bank's actions do not result in an increase in money supply, known as quantitative easing.

Furthermore, Draghi "is not known for his rash decision-making and if we have learnt one thing from the past 12 months it is that he will not be dictated by the markets, choosing time-and-again to hold rates steady in the face of major pressure to cut yet again, " says Mahony.

The Bank of England interest rate decision is due at 1200 BST, with a consensus expectation of no change to policy at this stage.

Ahead of the UK equity market open, and prior to the central banks' decisions, the FTSE 100 is called to open flat Thursday. IG and CMC Markets indicate that the blue-chip index will open fractionally lower at approximately 6,816 points, having closed at 6,818.63 on Wednesday, while Alpari expects it to open marginally higher at around 6,824.

In the forex market, the pound trades at USD1.6743, EUR1.2305, CHF1.5014, and JPY171.717. The euro trades at USD1.3604, CHF1.2198, and JPY139.504.

In data already released, the latest survey from HSBC and Markit Economics revealed that activity in China's services sectors continued to expand in May, but at a slower pace than the month before. China's services PMI saw a score of 50.7 last month, down from 51.4 in April. The composite PMI climbed into expansion at 50.2 in May, up from the upwardly revised 49.5 posted in April and snapping a three-month string of decline.

Meanwhile, German factory orders rose 3.8% month-on-month in April, up from a 2.8% decline in March, and comfortably beating economists' expectations of a 1.3% increase.

UK Halifax house price data are scheduled to be released at 0800 BST, with eurozone retail sales data due at 1000 BST. In the US, jobless data are published at 1330 BST.

In corporate news, following the completion of its quarterly index review, FTSE Indices confirmed that William Hill and Melrose Industries have been relegated from the FTSE 100, with 3i Group and Intu Properties replacing them. The changes will take effect from the market open on June 23.

The FTSE 250 changes were dominated by recent new listings, with Pets At Home Group, AO World, Just Eat, Poundland, BRIT, and Kennedy Wilson Europe Real Estate all entering the index after their recent initial public offerings. 888 Holdings and KCOM were among those demoted from the mid-cap index.

Meanwhile, ahead of the UK equity market open Thursday, FTSE 100-constituent Johnson Matthey has released full-year results, while FTSE 250-listed Bellway has released an interim management statement, as has ASOS. AO World has reported its maiden full-year results as a listed company, while blue-chip airline easyJet has provided traffic statistics for May.

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