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

LONDON (Alliance News) - UK stocks are set to open higher Tuesday ahead of UK Inflation data and eurozone economic sentiment readings to come.

Global equity markets made a poor start to the week on Monday as investors exercised caution towards riskier assets amid the ongoing conflict in Iraq, while continued tension in Ukraine weighed particularly on European markets after Russia turned off the gas supply to its neighbour.

While gains were limited, US markets did managed to close fractionally higher Monday, with the DJIA and the S&P 500 both gaining less that 0.1%. Some analysts noted a downgraded growth forecast for the US from the International Monetary Fund as a perverse stimulus to Wall Street, as markets increasingly try to predict the timing of the first US interest rate rise. The IMF downgraded its forecast for US growth this year to 2.0% from 2.7% in had previously predicted.

"US markets may have gained some support after the IMF downgraded its growth forecasts for 2014 and beyond for the US economy, urging the Federal Reserve to keep rates lower for longer, and this is likely to translate into a positive European open this morning," said CMC Markets chief market analyst Michael Hewson.

A mixed session in Asia has seen the Nikkei close 0.3% higher, while the Hang Seng continues to trade about 0.5% lower and the Shanghai Composite 0.8% lower.

After closing down 0.3% on Monday at 6,754.64, spread betters are indicating the FTSE 100 will open 12 to 13 points higher Tuesday at about 6,766 points.

The debate over the timing of an interest rate rise is becoming increasing lively in the UK, with some arguing that the current historic low rate is no longer necessary given improving economic data, and also suggesting a rate rise is needed to calm rapidly rising house prices, although the latest survey from Rightmove on Monday indicated a significant cooling of UK house price inflation in June.

UK inflation data, due at 0930 BST, will provide key information for investors and policy makers alike as to the timing of an interest rate rise. Consumer price growth is expected to slow, with core year-on-year prices, which exclude volatile items such as food and energy, forecast to be up by 1.7% in May after having hit the BoE's 2.0% target in April. Economists expect headline CPI to be up by 0.2% monthly and 1.7% annually in May, slowing from 0.4% and 1.8% respectively. PPI and RPI numbers are due at the same time.

The data comes as the Bank of England's Financial Policy Committee holds its regular quarterly meeting Tuesday, with the housing market expected to be a key topic of debate, although no announcement is expected from the FPC until the Financial Stability Report is published on June 26. A full record of the meeting will be published on July 1.

Housebuilders have been under pressure in recent sessions, particularly after BoE Governor Mark Carney warned last week that UK interest rates may rise sooner than previously expected. The market has received an update from a company's perspective Tuesday as FTSE 250 housebuilder Crest Nicholson has released its interim results.

Full year results have already been released also from Ashtead Group, Consort Medical, and Trifast, along with a trading statement from Whitbread and an interim management statement from JD Sports Fashion.

While not in the calendar, Royal Dutch Shell and BP may be in the spotlight, with Sky News reporting Monday that the UK's two biggest oil companies will unveil multi-billion pound deals with China on Tuesday. Any announcement would come as part of the Chinese Premier Li Keqiang's ongoing three-day visit to the UK.

While a positive open is expected for the FTSE 100, the ongoing situation in Iraq is unlikely to be far from investors' minds, particularly as the US said Tuesday that it will move nearly 300 soldiers into the capital Baghdad and elsewhere in the country to help secure its embassy, while the Iraqi government continues to combat the Islamist militant insurgency.

Also in the data calendar Tuesday, the German and Eurozone ZEW surveys of current economic conditions are due at 1000 BST, with economists looking for a small improvement since last month when the surveys hit multi-month lows amid concern over the economic impact of the unrest in Ukraine. The survey would have been taken too early to take account of the latest move by Russia to turn off Ukraine's gas supply.

Data from the US Tuesday includes CPI, which is expected to be stable year-on-year at 2.0%, housing starts, and the Redbook of retail sales.

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

Copyright 2014 Alliance News Limited. All Rights Reserved.