MARKET COMMENT: UK Stocks Set To Open Flat To Slightly Lower

Wed, 30th Apr 2014 06:45

LONDON (Alliance News) - UK equities are set to open flat to slightly lower Wednesday, following some strong gains posted on Tuesday, as investors take their positions ahead of important macro economic releases from Europe and the US.

Meanwhile, market participants in London face another day of transport disruptions as the 48-hour tube strike by members of the Rail, Maritime and Transport (RMT) union continues.

Global stocks closed significantly higher on Tuesday, with the FTSE 100 closing at its highest level for seven weeks; the CAC 40 in Paris closing at its highest level since 2008; and the DAX 30 in Frankfurt and the DJIA and S&P 500 on Wall Street all ending the day at multi-day highs.

"Exactly where the optimism for that extended rally stemmed from was not immediately obvious," says Rabobank analyst Michael Every.

The gains came despite economic data from around the world largely falling short of expectations, and the US and EU imposing additional sanctions on Russian interests as part of the ongoing Ukraine crisis.

"Either of these would have weighed heavily on sentiment and left markets in the red a few weeks ago, but that is not the case at the moment," says Craig Erlam, market analyst at Alpari. "Investors are instead being buoyed by the daily reports of mergers and acquisitions, particularly in healthcare stocks, and first quarter earnings, which haven?t been as bad as first feared despite the poor weather in the first couple of months."

However, positivity is set to wane Wednesday. The FTSE 100, which closed at 6,769.91 on Tuesday, is expected to open flat to slightly lower. Alpari indicates the blue-chip index to open down just 1 point, while CMC Markets and IG expect it to open even lower, down 18 points at approximately 6,751 points.

This follows a mixed trading session in Asia, where "the major indices are all treading water after a fairly quiet session that included one of the most uneventful policy decisions from the Bank of Japan you?re ever likely to see," says Erlam.

The BoJ left its monetary policy unchanged, as had been widely expected by economists. Members voted unanimously to increase the monetary base by between JPY60 trillion and JPY70 trillion a year.

Ahead of the UK equity market open, the Nikkei in Tokyo is up 0.3%, the Shanghai Composite index is up 0.7%, while the Hang Seng is down over 1%.

"Focus this morning will be on euro area preliminary HICP (harmonised index of consumer prices) - seen as a key gauge in determining if the European Central Bank will provide more monetary stimulus next week," says Carl Paraskevas, senior international macroeconomist at Lloyds Bank.

Consensus estimates are for the reading to rise to 0.8% in April, up from the 0.5% seen in March. However, weaker-than-expected April CPI data from Germany increases may weigh on the number.

The ADP employment change figure for April, released at 1215 GMT, will be used for directional guidance for Friday's non-farm payrolls. Consensus expectations are for the ADP report is to improve to 210,000, up from 191,000 new jobs added in March.

Shortly after, the preliminary reading of US first quarter GDP is published at 1230 GMT. This is "widely expected to be disappointing after the deep-freeze US winter," says Michael Hewson, chief market analyst at CMC Markets. An annualised reading of 1.2% is expected, down from 2.6% in the fourth quarter of last year.

Meanwhile, after the UK equity market close, the US Federal Open Market Committee publishes its latest interest rate and monetary policy decisions upon the conclusion of its latest policy meeting at 1800 GMT.

Although significant, "for the first time in a very long time markets aren?t expected to be hanging on to every single nuance coming from the culmination of a Federal Reserve FOMC rate decision," says Hewson.

Expectations are for the FOMC to taper its monthly asset purchases by another USD10 billion. There is no press conference scheduled for after the announcement.

Also in the data calendar Wednesday, French consumer spending and producer prices data are released at 0645 GMT, ahead of German and Italian unemployment information at 0755 GMT and 0800 GMT, respectively. The preliminary reading of consumer price inflation for Italy for April is scheduled at 0900 GMT.

In the US, the Mortgage Bankers Association releases its MBA mortgages applications data at 1100 GMT. The Chicago purchasing managers' index is released at 1345 GMT.

In corporate news, FTSE 100-listed CSR has published first quarter results ahead of the UK equity market open Wednesday. Blue-chips Standard Life, Next, and Tullow Oil have been joined by mid-caps International Personal Finance, Ladbrokes, SVG Capital, Ultra Electronics, Playtech, and Greene King, amongst others, in releasing trading updates.

FTSE 250-listed Home Retail Group has released full-year results.

Pharmaceutical giant GlaxoSmithKline is due to publish its first quarter results at 1300 GMT.

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