LONDON (Alliance News) - UK stocks are set to open slightly higher Thursday, ahead of another busy day of economic data, with the European Central Bank in firm focus as the markets increasingly anticipate a policy shift to stem the rising euro and falling inflation.
China announced slew of policy measures overnight to put the economy back on track to achieve this year's 7.5% government growth target. The three initiatives announced by the State Council on Wednesday include reforms in railway, an urban redevelopment program, and tax breaks for small and micro enterprises.
Data released overnight showed the Chinese service sector growing at a faster pace in March, with the latest PMI from HSBC and Markit coming in with a four month high score of 51.9, up from 51.0 in February. However, the Chinese state non-manufacturing PMI showed growth slowing in the sector in March, with a reading of 54.5, down from 55.0 in February.
A mixed day of trading in Asia followed the mixed reports Thursday, with the market apparently holding out for more from China in terms of stimulus, as the Shanghai Composite is down 0.7%, while the Nikkei is up 1.1% and the Hang Seng up 0.2%,
Spreadbetters are indicating the FTSE 100 will open marginally higher Thursday at 6,665.00.
The results of the ECB meeting, due at 1145 GMT, and President Mario Draghi's following press conference will be the main market focus of the day. Pressure has been building on the ECB to somehow ease policy further in the face of falling prices and a consistently strong euro. Wednesday's faster-than-expected fall in eurozone PPI was the most recent sign that further easing may be needed.
The markets have attached increasing credibility to the idea that the ECB will either introduce quantitative easing, the like of which has been seen in the UK and the US, or negative deposit rates, since the German Bundesbank President Jens Weidmann, a long term opponent of such measures, said last week that he now was open minded about the idea.
While there is a possibility that the ECB could take firm action, most analysts expect no change this week and see recent comments from officials as attempts to talk down the euro without having to resort to policy easing.
"The perception for now is that last week?s intervention by Weidmann is the latest attempt by the ECB to try and keep a lid on the current strength in the euro and nothing more," said CMC markets chief market analyst Michael Hewson.
One way or another the currency market is sure to see increased volatility as Draghi addresses the press. "I see no change ahead of the ECB, and am if anything slightly nervous about the market reaction if the central bank does nothing to fulfil hopes of further easing," said Societe Generale currency strategist Kit Jukes in a morning note to clients.
Ahead of the ECB, the European service sector will be in focus, with the Markit PMI numbers for March due throughout the morning, followed by eurozone retail sales, all ahead of the European Central Bank policy announcement at 1145 GMT.
The data is expected to follow a similar trend to the recent manufacturing PMI's, with slow expansion evidenced across the region, but a slight slowdown in growth from the previous month. Economists expect the eurozone services PMI, due at 0800 GMT, to fall slightly to 52.4, from 52.6 in February.
Similarly, the eurozone composite PMI, covering both the manufacturing and service sectors, is expected to slow slightly to 53.2 in March, from 53.3 in February, with the data due at 0800 GMT.
The French service PMI is expected to rise to 51.4 from 47.2, which would indicate an expansion in the French service sector for the fist time in nine months.
It's data like this, showing the eurozone economy slowly getting back in its feet, that casts doubt over the need for the ECB to take further policy easing action, despite the deflationary pressures in the economy, most recently evidenced by Wednesday's faster than expected fall in producer prices.
The last piece of data for the ECB to consider at this week's meeting will be eurozone retail sales, which are due at 0900 GMT. Year-on-year growth in sales is expected is expected to have slowed to 0.8% in February, from 1.3% in January. On a monthly basis economists expect sales to have fallen by 0.6% in February, reversing the 1.6% growth in January.
Vodafone has announced it plans to open 150 new high street stores, creating 1,400 jobs in the UK. The move by the group that currently has lots of cash to spend following its Verizon Wireless deal appears to buck the trend for most companies to be moving away from the high street and to online.
The UK housing boom, most recently evidence by Wednesday's jump in the Nationwide house price index, appears to be feeding through to the home improvement retailers. Dunelm Group has said in a trading statement Thursday that it has seen 5% like-for-like sales growth in the third quarter, despite a tough comparable period.
In its own trading statement, Tate & Lyle has once again said its profit growth is being held back by sucralose pricing. Statements have also been released already from Electrocomponents, Booker Group, and Hyder Consulting.
Meanwhile, London's latest big IPO, Just Eat, with a market cap of GBP1.47 billion, starts conditional trading Thursday.
George Osborne is due to appear in front of the Treasury Select Committee Thursday. Any comments from the chancellor with regard to the botched handling of the FCA's investigation into the insurance market may provide some market interest.
In the afternoon Thursday, the US ISM non-manufacturing PMI is the main economic focus, due at 1400 GMT and expected to rise strongly to 53.5 in March from 51.6 in February. The expectation is improved US data is steadily rising, along with the temperature, following weeks of apparently weather-affected data disappointments.
The Markit version of the US services PMI is also due Wednesday afternoon, along with weekly initial jobless claims data, which will give the last employment indicator ahead of the important non-farm payroll report on Friday.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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Tate & Lyle (TATE)
Dunelm (DNLM)
Vodafone (VOD)