5th Sep 2014 06:14
LONDON (Alliance News) - UK stocks are set to open a touch softer Friday, following the surprise stimulus announced on Thursday by the European Central Bank, and ahead of the August US non-farm payroll numbers.
Futures trading indicates that the FTSE 100 will open about 11 points lower at 6,867.
European stocks markets were buoyed on Thursday when the European Central Bank cut its interest rates, introduced a limited asset-buying programme, and indicated that the governing council is prepared to take its stimulus measures even further if needed to prod along the ailing eurozone economic recovery.
The asset backed securities being bought by the ECB will be packages of small non-financial business and real estate loans, rather than large bank and government debt, which would be needed for the measures to be considered full-blown quantitative easing. However, ECB President Mario Draghi did say that QE - something that has been proven to support equity market levels - was discussed and remains an option.
The historical strength of the euro has been a concern of the ECB for some time, as it makes exports more expensive and hampers the economic recovery. For this reason, Draghi has been attempting to weaken the single currency with every appearance and shift in rhetoric for at least the last six-month, with limited success.
In that regard, Thursday can be considered a win for the ECB, as the market reaction to its announcements was to send the euro a whole 2 cents lower against the dollar to USD1.2917, marking the currency pair's heaviest one day fall in memory, and its lowest level for 14-months.
Ahead of the UK equity market open Friday, the euro remains subdued at USD1.2935 and GBP0.7925.
US markets were following Europe higher at the time of Thursday's European close and the S&P 500 recorded another all-time high of 2,011.17. However, once again equity investors appeared a little nervous at those new heights, and the US markets pulled back. The S&P 500, the DJIA, and the Nasdaq Composite all ended just fractionally lower.
Trading has been mixed in the Asian session Friday, with the Nikkei closing up 0.1%, while the Hang Seng continues down 0.3%, and the Shanghai Composite continues up 0.5%.
The US non-farm payroll report will be the clear economic focus Friday, with economists expecting a headline print of 225,000 in August, up from 209,000 in July, which would represent the sixth consecutive month above 200,000 and indicate continues healthy jobs creation in the US. However, as is the case in the UK, it is wage growth that has become the key issue for the Fed before it decides to raise interest rates. Investors will therefore also be looking closely at average earnings growth, which were at 2% year-on-year last month.
"A number higher than 2% could well prompt additional speculation about an earlier rise in rates," says CMC Markets chief market analyst Michael Hewson.
Ahead of the main event, the second estimate of eurozone second-quarter GDP will be of interest at 1000 BST, although no change is expected from the initial print that estimates growth of 0.7% in the region, down from 0.9% in the first quarter.
German industrial production data already released Friday has shown a strong rebound in activity in Europe's largest economy, following a few months of subdued growth. Industrial production grew by 1.9% month-on-month in July, up from just 0.3% in June and exceeding expectations for growth of 0.3%.
In UK company news prior to the open Friday, newspaper and magazine distributor John Menzies has named the former Serco UK and Europe head, Jeremy Stafford, as its chief executive officer.
By Jon Darby; [email protected]; @jondarby100
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