4th Aug 2014 06:40
LONDON (Alliance News) - UK shares are set to open higher Monday, starting the week on a more positive note after the heavy sell-off suffered towards the end of last week on continued geo-political concerns.
Futures indicate that the FTSE 100 will open 0.4% higher at 6,700 points.
A strong bounce-back in second quarter US GDP sparked concern in the equities markets last week that the Federal Reserve might be encouraged to tighten its monetary policy faster than initially planned. While a slightly softer monthly jobs report eased these concerns slightly, a host of other issues, including concern over the impact of sanctions on Russia, kept risk sentiment firmly negative toward the second half of last week, sending the FTSE 100 to a four-month low.
"There has been a lot of talk regarding the threats within the markets, with geo-political fears being compounded by weakening volumes. Something had to give, and it did so in spectacular fashion," said Alpari research analyst Joshua Mahony in relation to the sell-off.
After European stocks markets closed heavily lower on Friday, US stocks went on the end lower as well, the DJIA down 0.4%, the S&P 500 down 0.3%, and the Nasdaq Composite down 0.4%.
A mixed Asian session on Monday has seen the Nikkei close down 0.1%, while the Hang Seng continues up 0.4%, and the Shanghai Composite continues up almost 1.0%.
Official Chinese non-manufacturing PMI data, released on Sunday, shows a slight moderation in expansion in July, with a reading of 54.2, down from 55.0 in June.
As well as the geopolitical issues that have recently been weighing on sentiment, concerns over the health of the European banking system have been raised once again by the troubles at one of Portugal's largest lenders, Espirito Santo. The troubled bank is to receive EUR4.9 billion in state aid, in a move announced late Sunday after the bank announced a EUR3.57 billion loss for the first half of the year last week.
Espirito Santo will be split into a good and bad bank in a similar move to that carried out by Royal Bank of Scotland in the UK. The latest news only serves to heighten the focus around the results of the Asset Quality Review, or bank stress testing, currently being carried out by the European Central Bank.
"We are told that this problem is likely to remain a fairly contained one, but if anyone truly believes that then they are truly kidding themselves," said CMC Markets Chief Market Analyst Michael Hewson. "With the European Central Banks AQR well under way, this bail out or recapitalisation, is unlikely to be the last, if these EU mandated stress tests are to be treated as in any way credible."
The European Central Bank policy announcement will be watched with interest on Thursday following the latest developments, although no shift in policy is expected given that it has been only two months since the Central Bank made the historic decision to introduce a negative deposit rate.
Amid the banking sector focus, HSBC's interim results will be the UK corporate highlight Monday, with the numbers due for release at 0915 BST. Ahead of the release, weekend press reports have said the bank is urging the government to delay a deadline for ringfencing the lenders' retail and investment banking operations.
According to Sky News, HSBC Chairman Douglas Flint has written to UK Chancellor George Osborne and Bank of England Governor Mark Carney to warn about potential implications of a competition probe into the banking sector which the UK's Competition and Markets Authority wants to pursue.
Interim results have already been released by Fidessa Group, Intertek Group, Senior, esure Group, Alent, and Telecity Group.
The domestic data focus Monday is the UK construction PMI, which is expected to remain extremely strong, at 62.0 in July after printing 62.6 in June. The report is due at 0930 BST.
"Since picking up sharply during 2013, culminating in a peak of 64.6 in January this year, the index has fallen back a little, possibly on the back of the slowdown in the pace of housing market activity," said Lloyds Bank senior economist Jonathan Thomas. "Nonetheless, the 62.6 print in June is consistent with a solid pace of sectoral activity."
Otherwise the data calendar is light Monday, with the eurozone Sentex Investor Confidence survey also at 0930 BST, and the US ISM New York index at 1445 BST.
By Jon Darby; [email protected]; @jondarby100
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