MARKET COMMENT: UK Stocks Set To Open Higher Ahead Of Inflation Data

LONDON (Alliance News) - UK stocks are expected to open higher Tuesday, building on Monday's gains ahead of UK inflation data due at 0930 GMT.

A mixed night in Asia saw the Japanese Nikkei close much higher after the country's central bank doubled the scale of its lending facility. The Bank of Japan decided to keep its asset purchase facility unchanged, but decided to double the 'Stimulating Bank Lending Facility.' The revision allows financial institutions to borrow funds from the Bank up to an amount that is twice as much as the net increase in their lending.

The Nikkei close 3.1% higher after the decision, while the Hang Seng trades down 0.1% and the Shanghai Composite is down 0.9%.

In the UK, following a strong day on Monday that saw the FTSE 100 gain more than 1.0%, stocks are expected to open higher again. Spreadbetters are calling the FTSE 100 to open up 0.4% at 6,755.00.

UK inflation data, due at 0930 GMT, provides the main economic focus of the morning. Economists are expecting the headline annual consumer price index to have remained stable at 2.0% in January. CPI fell to to governments target of 2.0% in December for the first time in over four years, with many expecting it to slip below in the months ahead.

"On balance, we think inflation will remain at 2.0% in January. Looking ahead, we see inflation edging below the Bank?s 2% target over the coming months, particularly with the announced unwinding of some energy price hikes expected to have more of an impact in February," said Lloyds economists in a note to clients.

The inflation data kicks off a busier few days for UK data, with unemployment data out on Wednesday and retail sales on Friday. Although the unemployment number has lost some importance since the revision of the Bank of England's forward guidance, markets are still focused on potential interest rate rises and the strength of the pound.

"If the annual inflation rate were to drop to 1.9%, then market expectations of a future interest rate rise are likely to be kept on the back burner for a little while yet," said CMC Markets chief analyst Michael Hewson.

The German and eurozone ZEW surveys of current economic conditions will come into focus at 1000 GMT. The expectation is for an unchanged reading of German economic sentiment number of 61.7 in February, while the current situation survey is expected to increase slightly to 44.0, from 41.2. Analysts expect the economic sentiment index for the eurozone to increase slightly to 73.9, from 73.3.

Demand for new cars in the eurozone would appear to support improving economic sentiment, with new car registrations rising by 5.5% in January, according to morning data from the European Automotive Manufacturers Association. The data shows a 7.6% increase in the UK and Spain, 7.2% increase in Germany, 3.2% in Italy and 0.5% in Spain.

Later in the afternoon, the US New York Empire State manufacturing index is due at 1330 GMT, followed by the US Redbook of retail sales at 1355 GMT.

The dollar has remained under pressure overnight, with the pound continuing to trade just above USD1.6700 and the euro continuing just above USD1.3700.

The gold price has slipped slightly from Monday's 15-week peak of USD1,332.10 per ounce to currently trade at USD1,318.15 per ounce.

UK budget high-street chain Poundland is reportedly set to confirm plans for a London IPO by next week, expecting to seek a valuation of about GBP700 million.

In the corporate calendar Tuesday, interim results from BHP Billiton have already been released, along with full-year 2013 results from Wood Group, Intercontinental Hotels Group, Drax Group, Pendragon PLC and AZ Electronic Materials.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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