5th Nov 2013 13:55
LONDON (Alliance News) - US markets are set open lower Tuesday, after their UK and European counterparts were hit by revised eurozone growth forecasts from the European Commission.
Having initially traded higher, UK and European equities reversed at mid-morning after the Commission released revised economic growth forecasts for the eurozone, predicting growth of just 1.1% in 2014, compared to the 1.2% previously forecast.
The surprise downward revision sent global equity markets tumbling into the red. Ahead of the New York opening bell, the FTSE 100 is down 0.6% at 6,724.71, the FTSE 250 is off 0.8% at 15,351.22, and the AIM All-Share, performing the best, is just marginally lower at 810.79.
US pre-market trading suggests a lower open is to follow in New York. The DJIA, S&P500 and the Nasdaq Composite all are indicated to open 0.3% lower by IG Markets.
The divergence between the euro and the pound is continuing as poor economic readings and forecasts for the eurozone continue to fuel talk of a rate cut by the ECB at the policy meeting on Thursday, while economic data in the UK comes out strong. The UK Markit services PMI smashed expectations earlier in the day, coming in at 62.5 for October, up from 60.3 in September and against a forecast of 59.8.
"The Great British pound shot higher like a proverbial rocket on Guy Fawkes? day on the back of a very strong UK October Services PMI print", said Citi FX analyst Lee Oliver.
The pound has gained more than 1% against the dollar since the reading, currently trading at USD1.6060. The pound has gained about 0.6% against the euro since the morning data and forecast announcements, the euro making a low of GBP0.8396, about 2% lower than the middle of last week, when fears of a rate cut by the ECB first surfaced after weak eurozone inflation data.
"An impressive figure from the service sector finishes off yesterday's positive PMI releases. The outlook for the UK is looking brighter, and with manufacturing, construction and service sectors all pointing to solid growth, the probability the BoE will have to raise its quarterly growth projections is increasing", says Sasha Nugent, an analyst at Caxton FX.
Within struggling UK equities, metals and miners continue to fare the best on the back of the continued improvement of Chinese PMI data seen overnight. Also supportive of the sector, the price of gold is being pushed higher as investors reposition out of equities in light of the lower eurozone growth forecasts. The Industrial Metal and Mining sectors are the only significantly gaining FTSE 350 sectors, up 2.1% and 1.9%, respectively.
The retail sector is holding its head above water, buoyed almost single-handedly by Marks & Spencer. M&S leads individual blue chip gainers, up 3.8%, after reiterating full-year earnings guidance, catching off guard a market that had been expecting downgrades. There is "a sense of relief" in the market over the maintained guidance from M&S, says shore Capital retail analyst Clive Black, although the company has "a big half ahead".
Financial stocks are weighing heavily on equity indices. The non-life insurance sector is down 2.5%, led lower by RSA Insurance, which trades 6.5% lower after reporting that it expects its full-year weather losses to be "materially above planning assumptions", partially as a result of the recent UK storm "St. Jude". The life insurance and banking sectors also are heavy fallers, down 1.8% and 1.7%, respectively, despite positive results from Legal & General.
Still to come Tuesday, the US ISM non-manufacturing PMI and the IBD/TIPP index of economic optimism, both at 1500 GMT.
By Jon Darby; [email protected]; @jondarby100
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