8th Aug 2014 06:39
LONDON (Alliance News) - UK stocks are expected to open significantly lower Friday, extending recent losses, as investors seek to shed traditionally risky assets amid increasing fears about the situation in both Iraq and Ukraine.
Global equities have come under pressure in recent days as tensions between Russia and the West weigh heavily on investor sentiment.
Major European and UK stock indices closed lower on Thursday after Russia imposed its own set of sanctions on the European Union, US, Norway, Canada and Australia, in retaliation for western sanctions over its alleged role in the separatist uprising in eastern Ukraine and the downing of Malaysian Airlines flight MH17 by rebel fighters.
After the UK equity market close, US stocks followed suit, closing sharply lower, with the DJIA and NASDAQ Composite both closing down 0.5%, and the S&P 500 closed down 0.6%.
With concerns about the Ukraine crisis continuing to bubble away, focus has now shifted back to Iraq.
"Just when we thought that the markets were able to return to an economic focus, another one of the many geopolitical risk regions has flared up, with the announcement that the US is willing to utilise targeted airstrikes against the Islamic State militants that have been moving across the country," says Joshua Mahony, a research analyst at Alpari.
Late on Thursday, US President Barack Obama authorised airstrikes against Islamist militants that have taken over swathes of territory in Iraq and Syria, and said it could act to prevent a possible "act of genocide" against displaced minority communities. However, the president stressed that no US ground troops would be involved in the operation.
"This new development along with existing concerns about an escalation in the Ukraine could well keep markets and investors firmly on the back foot for some time to come," says Michael Hewson, chief market analyst at CMC Markets.
Ahead of the UK equity market open Friday, the FTSE 100 is called to open firmly lower, having closed at 6,597.37 on Thursday. IG and CMC Markets expect the blue-chip index to open approximately 40 points lower at around 6,557, while Alpari calls it to open even lower at around 6,579.
"Chinese July trade data overnight might have had the ability to help inject a more optimistic tone to the end of the week," says Hewson.
However, although China's exports surged 15% year-on-year, beating expectations for a gain of 7.5% following a 7.2% increase in June, imports fell 1.6%, compared with forecasts for an increase of 3.0% and a 5.5% rise a month earlier. The nation posted a merchandise trade surplus of USD47.3 billion in July.
Japan, meanwhile, posted a current account deficit of JPY399.1 billion in June, sliding into the red after four consecutive months of surplus. The trade balance reflected a deficit of JPY537.1 billion, which beat expectations for a shortfall of JPY592.8 billion, following the JPY675.9 billion deficit in the previous month.
In the run up to the UK equity market open, Asian stocks trade mixed. The Nikkei in Tokyo has fallen 3.0%, while the Hang Seng and Shanghai Composite index fractionally higher.
However, "a busy overnight Asian session has given way to what is likely to be a somewhat quieter Friday for both European and US markets in terms of economic announcements and thus this risk-off sentiment is likely to continue to dominate," says Alpari's Mahony.
In data just released, Destatis has revealed that Germany's exports recovered in June. The country's exports grew 0.9% month-on-month in June, reversing the 1.1% decline in May, coming in above the expected 0.5% increase. At the same time, imports advanced 4.5%, compared with the forecast 1.7% growth, having falling 3.4% in May.
Still to come in the data calendar Friday, the UK is scheduled to release its construction output and trade balance reports at 0930 BST. Construction output is expected to rise 4.7% year-on-year in June following a 3.5% increase in May. On a month-on-month basis, construction output is estimated to rebound by 1% in June following the 1.1% drop on May.
The UK 's non-EU trade deficit is expected to narrow to GBP3.60 billion in June from GBP3.96 billion in May, while the visible trade deficit is estimated to narrow to GBP8.9 billion in June from GBP9.20 billion in the previous month.
"Whilst these can be important, it is highly unlikely that they will be as well followed as the Chinese figures given the role China has upon global growth," says Mahony.
In the forex market, ahead of the data and the UK equity market open, the pound trades at USD1.6809, EUR1.2579, CHF1.5265, and JPY171.039. The euro trades at USD1.3360.
In the corporate calendar, FTSE 100-listed TUI Travel has released third-quarter results, while FTSE 250-listed Catlin Group has published half-year results and Bellway has released a trading update.
By James Kemp; [email protected]; @jamespkemp
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
BellwayTUI.LCastelnau Group