12th Feb 2014 07:41
LONDON (Alliance News) - UK stocks are set to follow their Asian counterparts higher Wednesday as Chinese trade data released overnight came in significantly ahead of expectations.
However, with the Bank of England's Quarterly Inflation Report due at 1030 GMT, early trading is likely to be restrained.
Data from China's General Administration of Customs has revealed that the world's second largest economy's export and import growth accelerated unexpectedly in January.
Defying expectations that the economy is set for a slowdown in early 2014, Chinese exports surged 11% year-on-year in January, accelerating from a 4.3% rise in December, and coming in well ahead of the 2.0% advance economists had expected. Imports advanced 10% versus December's 8.3% growth and the 3.0% growth forecast by economists.
As a result,the trade surplus increased to USD31.86 billion in January from USD25.60 billion a month ago. Economists had expected the balance to dip to USD23.65 billion.
Japanese data was not as positive, however. Japan's core private-sector machinery orders fell the most since 1998 in December, plummeting 16% from the previous month, well shy of forecasts for a decline of 4.0% following the 9.3% jump in November.
Nevertheless, ahead of the London stock market open, Asian equity indices are higher. The Nikkei is up 0.6%, the Shanghai Composite index is up 0.3%, and the Hang Seng is up 1%.
This positive sentiment is set to be carried into UK stock markets. Both CMC Markets and IG indicate the FTSE 100 to open up at approximately 6,690, around 17 points higher than Tuesday's 6,672.66 closing level.
"The focus for Wednesday falls firmly on the Bank of England?s Quarterly Inflation Report," says Nikesh Sawjani, UK macroeconomist at Lloyds Bank.
With the UK economy seemingly recovering much quicker-than-expected, Governor Mark Carney is under increasing pressure to provide further guidance to allay the market expectation of an interest rate hike.
"The key question will be whether or not Carney either quietly drops the unemployment threshold, revises it, or pushes the market in the direction of average wage growth relative to price inflation, or whether he toughs it out by insisting that the unemployment rate was one indicator, and only a threshold, along with the inflation rate, and that because both are falling the need for a rate hike remains some way away," says Michael Hewson, chief market analyst at CMC Markets.
"Our conviction is that the MPC [Monetary Policy Committee] will let forward guidance effectively expire, adopting a looser form of guidance, widening the parameters it uses to assess spare capacity and avoiding numerical quantification," says Lloyds Bank's Sawjani.
The report is released at 1030 GMT, with Carney giving his speech at the same time.
Also in the data calendar Wednesday, EU industrial production figures for December are scheduled for 1000 GMT. European Central Bank President Mario Draghi gives a speech at 1530 GMT.
In the US, MBA mortgage applications are due at 1200 GMT, ahead of the US monthly budget statement at 1900 GMT.
In the corporate calendar, FTSE 100-constituents Tullow Oil, Reckitt Benckiser and FTSE 250-listed Telecity Group have released 2013 full-year results ahead of the UK stock market open Wednesday. Mid-cap African Barrick Gold has released full-year results. Also in the FTSE 250, WS Atkins has released an interim management statement.
By James Kemp; [email protected]; @jamespkemp
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