3rd Jun 2014 15:46
LONDON (Alliance News) - Stocks across the UK and Europe slipped lower Tuesday amid a busy day of macroeconomic data that leaves the focus squarely on the European Central Bank's upcoming policy announcement on Thursday.
European markets failed to take a lead from a broadly positive Asian session Tuesday that saw the Nikkei gain 0.7%, the Hang Seng gain 0.9%, and the Shanghai Composite close flat after the HSBC Chinese non-manufacturing PMI rose to 55.5 in May from 54.8 in April, building on the strong rise in the official manufacturing PMI figure released earlier this week.
European investors, however, are this week are more preoccupied with the upcoming ECB meeting, at which the case for further policy easing will be announced, which has only been strengthened by Tuesday's disappointing eurozone inflation and unemployment data.
While any measures announced by the ECB on Thursday to boost market liquidity could in turn boost interest in equities, analysts say that full-scale quantitative easing remains an unlikely option, and the event risk is leading to cautiousness and some profit taking from the all-time highs markets around the world have reached in recent days.
The FTSE 100 closed down 0.5% at 6,831.48, the FTSE 250 has closed down 0.7% at 15,968.03, and the AIM All-Share has closed down 0.5% at 808.21.
In Europe, the French CAC 40 and the German DAX both closed down 0.2%, while in the US the DJIA and the S&P 500 both continue to trade about 0.2% lower.
"It's not unusual to see the more cautious approach from traders in the lead up to such a huge decision and I won't be surprised if it continues for the next couple of days," said Alpari Market analyst Craig Erlam.
Eurozone consumer price inflation was reported Tuesday at 0.5% year-on-year in May, down from 0.7% in April, and lower that the 0.7% expected by economists. Core inflation is seen at 0.7% year-on-year, down from 1.0% in April.
Along with the weaker-than-expected CPI, eurozone unemployment data will have done little to ease price and growth concerns at the ECB. The headline rate of Italian unemployment remained stable at 12.6% in April, while the youth unemployment rate in the troubled economy rose to 43.3% from 42.9% in March. A slightly better picture in Spain saw a 111,900 drop in the number of people unemployed in May, while across the whole Eurozone the headline rate ticked down to 11.7% in April from 11.8% in March.
The euro actually rose a little against the dollar in the wake of the low eurozone CPI print, as it did on Monday in the wake of a weak German print, suggesting that some amount of policy easing at Thursday's meeting is already priced in by the markets. Indeed, the euro has been the worst performing major currency since the last ECB meeting, when action at Thursday's meeting was first hinted at, falling almost 3% from USD1.40 to currently trade just above USD1.36.
"The rally in the euro was nothing spectacular, but it does make me question exactly what the markets have priced in ahead of the ECB meeting on Thursday," said Alpari's Erlam. "This would suggest that the markets are pricing in something much more aggressive than I am currently anticipating, be it quantitative easing or negative deposit rates."
Calls for the ECB to take drastic action are growing ever louder amid the disappointing data releases. "We are now in a situation where people are expecting a further cut in interest rates on Thursday, as well as the introduction of negative deposit rate for banks," said UFXMarkets managing director Dennis De Jong. "That tells you just how bad things have become."
In the UK Tuesday, the supermarkets week amongst the heaviest fallers after data showed the grocery market growing at its slowest pace in more than eleven years. According to the latest figures from Kantar Worldpanel, Tesco PLC, J Sainsbury PLC and Wm Morrison Supermarkets PLC all reported market share declines in the 12 weeks ending May 25, while Wal-Mart Stores-owned Asda was the only large grocer to grow its share year-on-year during the period.
"The Kantar data represents a continuum of recent trends with the limited assortment discounters gaining share at a rapid rate whilst Tesco in particular looks to be the big loser," said Shore Capital head of research Clive Black. "There is little going the way of the big supermarket groups at the moment with weak overall demand and rising competition, not just from discounters but also from more eating out of the home. Tough times indeed."
Morrison closed down 2.2% Tuesday, with Sainsbury's down 2.0%, Ocado down 1.8%, ad Tesco down 1.2%.
UK construction growth slowed slightly in May but remained very strong, driven by the building of residential housing, while the commercial sector expanded at the slowest rate for seven months. The Markit/CPIS UK construction PMI fell to 60.0 in May from 60.8 in April.
While the reading is down from the recent high of 64.6 in January, it remains well above the 54.4 average for 2013, said Berenberg chief UK economist Rob Wood. "Construction is still booming despite the PMI slipping back a little in May," the economist said.
Shares in London-based estate agent Foxtons took a knock Tuesday, leading the FTSE 250 lower and closing down 6.1% after saying its Chief Executive Michael Brown has decided to step down on July 1 after seven years at the helm, for personal reasons.
Tullet Prebon investors were less concerned about a directorate change at the interdealer brokerage. The shares led the gainers in the FTSE 250 and closed up 5.6% after reports that it is in advanced talks to appoint a successor to Chief Executive Terry Smith. The Financial Times reported that former Nomura and Lehman Brothers executive John Phizackerley is emerging as the leading contender to succeed him.
Plumbing and heating product supplier Wolseley led the few gainers in the FTSE 100 after reporting higher trading profit for its third-quarter. The shares closed up 1.7% after Wolseley said its trading profit for the three months to April 30 was GBP153 million, up from GBP150 million a year earlier.
In the UK corporate calendar Wednesday, following Tuesday's disappointing UK grocery market data from Kantar, Tesco is due to release a first-quarter interim management statement. Synergy Health is due to publish its full-year results, along with RPC Group, Workspace Group, and Advanced Computer Software Group.
Overnight, the latest shop price index from the British Retail Consortium, and the Royal Institute of Chartered Surveyors housing price balance are both due for release, while the Halifax house price index is also expected to be published as the markets open at 0800 BST Wednesday.
Following Monday's round of Markit manufacturing PMI's, that were broadly revised lower, hurting equity indices, the service sector numbers will provide the early focus Wednesday. Much like in the manufacturing sector, investors will be watching to find out whether the French service sector slipped into contraction in May, as the Flash reading suggested two weeks ago. The German flash estimate, meanwhile, indicated strong growth two weeks ago, rising to 56.4 and supporting modest expansion in the eurozone wide number to 53.5. The French print is at 0850 BST, followed by the German print at 0855 BST, and the eurozone print at 0900 BST.
The UK Markit services PMI is due at 0930 BST, with economists expecting a rise to 58.2 in May from the 58.7 recorded in April.
With Thursday's ECB meeting remaining the main event of the week, the first revision of eurozone first quarter GDP will be the main economic focus Wednesday. Due at 1000 BST, economists are expecting an unchanged growth estimate of 0.9% year-on-year, with the quarterly figure also expected to be unchanged at 0.2%.
From the US Wednesday, MBA mortgage applications, the ADP employment number, the Markit and ISM non-manufacturing PMI's, and the Fed's Beige book of economic conditions are all due - all ahead of the US non-farm payroll employment report on Friday.
By Jon Darby; [email protected]; @jondarby100
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