13th Aug 2014 06:29
LONDON (Alliance News) - UK stocks are set to open fractionally lower Wednesday following a mixed session in Asia and ahead of the latest UK unemployment and earnings data, as well as an update from the Bank of England when it published its quarterly inflation report later in the morning.
Futures indicate that the FTSE 100 will open just 6 points lower at 6,626.
The UK market held near to flat on Tuesday, while European markets slumped following very disappointing German and eurozone ZEW surveys of economic confidence, with the German DAX losing 1.2% over the session.
US markets went on to to make small losses, with the DJIA and the S&P 500 both losing between 0.1% to 0.2% on Tuesday. Asian markets then had a mixed session, with only the Japanese Nikkei making gains, closing up almost 0.3% despite the release of figures showing a big contraction in Japanese GDP. The Hang Seng continues 0.1% lower, while the Shanghai Composite is 0.4% lower.
Japan's economy contracted by 6.8% year-on year in the second quarter of 2014, marking the country's worst decline since the earthquake and tsunami in 2011, due in large part to a sharp decline in consumer spending following the implementation of a consumption tax hike in April. However the market reaction was muted as it still came in ahead of forecasts for a decline of 7.1%.
A raft of Chinese data overnight showed that industrial production growth slowed to 9.0% year-on-year in July, from 9.2% in June, in line with expectations. Over the same time, retail sales in the world's second-largest economy grew at 12.2% year-on-year, slowing from 12.4% in the month before and missing expectations for growth to remain unchanged.
On Tuesday it was a big drop in the German ZEW economic sentiment survey that weighed on European equitiesm and German inflation data just released has shown further deflationary pressure in the country. German consumer prices grew by 0.8% year-on-year in July, slowing from 1.0% growth in June, though in line with analysts expectations.
The UK economy will be brought sharply back into focus later in the morning when the latest unemployment and average earnings data are released at 0930 BST. Average earnings growth is expected to be unchanged at 0.7% in the three months to June, while average earnings including bonuses are expected to have slipped by 0.1% over the same period, reversing some of the 0.3% growth seen last month.
The headline unemployment rate, meanwhile, is expected to continue to improve and fall to 6.4% in the three months to June, after having fallen to 6.5% in the previous month, which was already the lowest level since January 2009.
UK unemployment has plunged over the past year while pay growth has remained weak. "That disconnect means there is likely to be more slack left in the labour market than the Bank of England has so far assumed," says Berenberg chief UK economist Rob Wood.
Investors will be expecting an update on the central bank's view of that slack, when it published its quarterly inflation report at 1030 BST. All eyes will be on Governor Mark Carney when he delivers his accompanying speech at the same time.
An increasing number of UK companies have cited the strength of the pound as having a negative impact on their first-half results during the current reporting season. Having peaked against the dollar at almost USD1.72 about a month ago, the pound has since lost ground against almost every other major currency, more than 2.0% against the dollar, as investors have adjusted to a strengthening of guidance from the Bank of England that interest rates will not be rising while real wages are still being squeezed at the current rate.
Before the equity market open Wednesday, the pound is gaining a little ahead of the UK data, currently trading at USD1.6822 and EUR1.2580. Wednesday's updates on the UK economy and any shift in tone from Carney may dictate whether the pound's recent decline continues.
From the UK corporate calendar Wednesday, international recruitment business Michael Page has become the latest company to report the the strong pound is hitting its results, saying that foreign exchange movements took GBP19 million off its operating profit in the first half.
Interim results have also been released by Admiral, EnQuest, and Brit Group, while production figures have been released by Glencore.
In a very busy day of economic data, there's also eurozone industrial production data due at 0900 BST, which is expected to show that production growth slowed to 0.1% year-on-year in June from 0.5% in May.
From the US later in the session, retail sales data at 1330 BST will be the main economic focus, with stable month-on-month growth of 0.2% expected.
Given that a huge convoy of Russian trucks is reportedly still making its way to the Ukrainian border, where Ukrainian officials have said they will not be allowed entry, geopolitical tensions may also continue to provide a backdrop to a very busy day for the markets.
"There?s likely to be an eye on event risk again today," said Rabobank analyst Michael Every.
By Jon Darby; [email protected]; @jondarby100
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