MARKET COMMENT: UK Stocks Set For Soft Open Ahead Of European Data

LONDON (Alliance News) - UK stocks are set to open marginally lower Thursday, following a negative close on Wall Street on Wednesday and ahead of some top-tier economic data from Europe.

UK equities closed mixed on Wednesday, with only a late rally in the FTSE 100 preventing the UK's blue-chip index closing in the red, as markets struggled to find reason to push higher from the multi-year highs made in recent sessions.

This sentiment was replicated in Europe, where the CAC 40 closed down 0.1%, and the DAX 30 in Frankfurt closed fractionally lower.

Similarly, in the US, the DJIA, NASDAQ Composite and S&P 500 all closed between 0.5% and 0.7% lower on Wednesday.

"While US markets remain conflicted about the strength of the US recovery, European investors are no less concerned as to the health of the European economy, if this week is any guide, with European markets trying to push on yesterday, but struggling in the manner of a car moving forward with the handbrake on," says Michael Hewson, chief market analyst at CMC Markets.

"Disappointing forward-looking ZEW data, combined with concerns about falling inflation has raised the prospect of some form of action from the ECB next month, which has helped underpin markets in Europe," says Hewson.

However, with the latest reading of eurozone consumer price inflation due to be released, alongside the preliminary readings of gross domestic product from a host of European countries, as well as the wider euro area itself, the FTSE 100 is indicated to open marginally lower Thursday.

Ahead of the UK equity market open, both IG and CMC Markets expect the blue-chip index to open down at approximately 6,868 points, having closed at 6,878.49 on Wednesday.

"The focus will be on the euro area this morning, with preliminary estimates of first quarter GDP and the final estimate of April CPI due," says Jeavon Lolay, head of international macroeconomics at Lloyds Bank.

The euro-area GDP measure, which is released at 0900 GMT, is widely expected to rise to 0.4% in the first quarter, up from the 0.2% posted in the fourth quarter of 2013. Year-on-year, the reading is forecast to rise to 1.1% from 0.5%.

Ahead of this release, France's preliminary GDP reading for the first quarter, already released, showed that the French economy remained flat in the quarter after recovering at the end of 2013. Gross domestic product showed nil growth from the prior quarter, having been expected to rise 0.2%, following a 0.2% expansion in the fourth quarter of 2013.

Meanwhile, the equivalent reading from Germany revealed that growth in Europe's largest economy accelerated more-than-expected in the first quarter. The quarterly growth in gross domestic product doubled to 0.8% in the first quarter from 0.4% in the previous quarter. The reading had been expected to grow 0.7%.

The preliminary reading of Italian GDP is released at 0800 GMT.

"The backdrop of impending stimulus measures from the ECB add another dimension to this today, with GDP rates likely to be strengthened by any monetary stimulus going forward," says Joshua Mahony, research analyst at Alpari.

"I would not expect any adverse reaction should these figures come in above estimates, owing to the fact that largely the ECB decision-making is driven by low inflation and a strong euro, rather than any current growth fears for the region," Mahony says. However, "with the inflation figure also due out this morning, we could certainly see markets draw conclusions as to whether we will see any further action from the ECB in June," he adds.

Euro area consumer price inflation, released at 0900 GMT, is expected to show a 0.2% increase month-on-month in April, having recorded a 0.9% rise in March. Year-on-year, it is forecast to rise 0.7% following a 0.5% rise in March.

The data follows on from some mixed consumer price inflation numbers from Germany and France on Wednesday. German CPI recorded a drop of 0.2% month-on-month in April, reversing the 0.3% rise posted in March, while French CPI showed that prices remained flat in April.

Later in the day, US consumer price inflation data, US jobless claims data, and the New York Empire State manufacturing index are released at 1230 GMT. US industrial production information is published at 1315 GMT, with the National Association of Home Builders' housing market index and the latest Philadelphia Federal Reserve manufacturing survey at 1400 GMT.

In corporate news, the Independent has reported that HSBC Holdings has stepped back from its original bonus plans for Chairman Douglas Flint, cutting it to a one-off maximum payment of GBP1.0 million. HSBC had wanted to pay Flint a share-based bonus of up to the entire amount of his fixed pay due to his extra work on regulatory reform.

According to the Independent, HSBC has cut the maximum bonus payable from the original GBP2.25 million sum to avoid a revolt over pay at its next AGM.

Meanwhile, FTSE 100-listed National Grid has released full-year results, with Aviva and Old Mutual providing trading updates.

FTSE 250-listed Vedanta Resources and TalkTalk Telecom Group have released full-year results, while Marston's and Thomas Cook Group have released half-year results. Dixons Retail, Rank Group, Premier Farnell, Kier Group, Restaurant Group, Vesuvius, and Merlin Entertainments have all released trading updates.

Dixons and Carphone Warehouse also unveiled their merger, to be called Dixons Carphone.

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

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