17th Jul 2014 06:46
LONDON (Alliance News) - Futures indicate UK stocks will open a touch softer Thursday, with the FTSE 100 expected to open 16 points lower at about 6,768, as investors step back from the previous day's strong gains with a wary eye on Russia and the Ukraine.
With no UK economic data due Thursday, US earnings later in the day may provide the main driver, while investors will be cautious after the US turned up the pressure on Russia Wednesday night with a fresh round of sanctions for its actions in Ukraine, with the EU saying it would soon follow suit. President Barack Obama called the US sanctions "significant but targeted" against Russia's financial, energy and defence sectors.
London's blue-chip index had its best day in over four-months on Wednesday, gaining 1.1% to close at 6,784.67, boosted by the mining stocks and a general improvement in sentiment as China released official GDP data showing that its economy grew at its targeted rate of 7.5% in the second-quarter.
US markets went on to make further gains after the European close Wednesday, with the DJIA ending up almost 0.5% at another all-time high, and the S&P 500 gaining 0.4%, as second-quarter earnings from some of the worlds biggest companies continued to impress, and amid an ongoing merger and acquisition boom.
Time Warner ended the day more than 17% higher following the confirmation that it rejected a formal takeover offer of USD80 billion from 21st Century Fox. Given Rupert Murdoch's reputation for aggressively pursuing his targets, the market is betting that won't be the end of discussions between the two.
The global rally has stalled in the Asian session, however, with the Nikkei closing fractionally lower, and the Hang Seng continuing down 0.2%, while the Shanghei Composite is down 0.7%.
Fed Chair Janet Yellen more-or-less reiterated the same message to the US Congress on Wednesday as she put forward in the first part of her testimony on Tuesday. In fact the prepared statement was exactly the same. The Fed chair gave little away about the timing of any interest rate rise in the US, although she did appear to climb down a little from Tuesday's claim that the valuations of some technology and social-media stocks look stretched, saying stocks and bonds are "not out of line with their past norms".
Merger and acquisition interest will continue in the UK Thursday, with Dixons and Carphone Warehouse shareholders voting, at separate meetings, whether to approve the merger between the two retailers and allow the creation of the new Dixons Carphone.
Furthermore, Shire investors are bracing themselves for a potential final offer from US suitor AbbVie, given that the US company has until Friday to make a firm offer or walk away from any deal for six months, under UK takeover rules. The pressure is mounting on AbbVie to make a quick move, given the increased scrutiny such tax inversion deals are starting to receive from US lawmakers that are seeing more and more US companies re-domicile abroad to avoid high US corporate tax rates.
Sports Direct International Executive Deputy Chairman Mike Ashley surprised everyone Wednesday by withdrawing from the groups 2015 Bonus Share Scheme, just weeks after shareholders finally, at the fourth time of being asked, voted in favour of him getting his first share bonus since the company listed in 2007. The online sports retailer is back in focus Thursday having just released its full-year results showing big rises in revenue and pretax profit.
Following some mixed mining sector updates Wednesday, the production reports keep coming Thursday, with second-quarter numbers provided already by Anglo American and London Mining. Interim management statements have also been released by Land Securities and SSE, along with trading statements from Hilton Food Group and Computacenter.
After a couple of busy days in the UK economic calendar that have seen unemployment fall to i's lowest level in almost six-years, and inflation jump to 1.9%, while wage growth remains subdued well below that, at either 0.3% or 0.7% depending on whether you include bonuses or not, there's nothing from the UK schedule Thursday.
Instead, the morning focus will be the final reading of eurozone consumer price inflation. According to the initial estimate at the end of last month, annual core CPI ticked up to 0.8% in June from 0.7% in April, just after the European Central Bank made the historic decision to introduce negative interest rates in an attempt to ward off deflationary pressure and boost economic growth.
Thursday's reading is expected to remain unchanged, with core consumer price growth at 0.8% year-on-year and non-core, which includes more volatile items like food and energy, at 0.5%.
Any slip below the expected level will put the pressure back on ECB President Mario Draghi to take further action at the next ECB meeting, although despite his recent comments that full-scale asset buying remains an option, analysts continue to question whether it would actually be possible, given the complexity of its implementation, which is much more that in the UK or the US.
"He insists that quantitative easing is within the bank's mandate and would be used if required, but this claim remains barely credible given the huge legal and political obstacles to implementing it," says CMC Markets chief market analyst Michael Hewson.
From the US Thursday, weekly initial jobless claims are due at 1330 BST, followed by the Philadelphia Fed Manufacturing Survey at 1500 BST, and a speech from St. Louis Federal Reserve President James Bullard after the European close at 1835 BST.
While the data calendar is fairly quiet, US earnings season in in full-flow, with a raft of companies reporting Thursday, not least technology superpower Google, as well as another big banking name, Morgan Stanley.
By Jon Darby; [email protected]; @jondarby100
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