GLOBAL MARKETS: European Stocks Seen Lower; BOE And ECB Eyed

 
   By Ishaq Siddiqi 
   Of DOW JONES NEWSWIRES 
 

LONDON (Dow Jones)--European stock markets are expected to open lower Thursday, as a final hour selloff on Wall Street Wednesday dampened investors' spirits following the U.S. Federal Reserve's statement, which contained no surprises and left the markets in limbo.

Like the FOMC statement, the U.S. Automatic Data Processing payroll figure was largely in line with expectations. And an appreciative initial reaction to the Fed announcement failed to hold, said Cameron Peacock, market analyst at IG Markets.

"As a result, the late sell-off on Wall Street has the potential to weigh on European markets as the day's trade gets underway, although with the Bank of England and European Central Bank rate verdicts [due 1200 GMT and 1245 GMT respectively], plus the accompanying U.K. quantitative easing announcement, the potential for further volatility in the short term certainly cannot be overlooked," said Peacock.

He expected London's FTSE 100 index to open 38 points lower at 5070, Frankfurt's DAX index off 53 points at 5391, and the CAC-40 index in Paris 33 points lower at 3637.

The final hour selloff on Wall Street seemed to capture the markets' confusion about the true implications for what potential rate hikes might mean for the economy and the market appears to be finding it very easy to roll over whenever it starts to see any positive momentum, Peacock said. "This is a classic sign the market has run out of steam and looking a bit tired. The fact that we had a weaker dollar and broadly higher commodity prices and still saw materials names trading convincingly lower, suggests investors are both uncertain and cautious about the sustainability of the economic recovery," he added.

Traders are expected to maintain their cautious stance as they look ahead to the rate-setting announcements from the ECB and BOE, at which key rates are expected be kept unchanged. The BOE is expected to keep the benchmark rate unchanged and further quantitative easing still appears very likely at the next meeting, in light of recent speeches from BOE members, said Jerome Deneaux, analyst at Newedge Group.

And the ECB meeting and President Trichet's press conference will certainly confirm the recovery in activity, but also the cloud that remains over the economic outlook, said Deneaux. "The decline in private lending in September suggests that the ECB won't be quick to stop its non-conventional monetary policy. The central bank will keep rates unchanged," he added.

On Wall Street Wednesday, another volatile session saw the Dow Jones Industrial Average swing between a 150-point gain and the flat line in just the last hour and a half, with much of the conversation and trading centered around the Fed.

Late in the day, the Fed kept its key rate target near zero, as traders expected. Its policy statement contained no major changes in language from the one issued in late September, but the central bank cut the amount of agency debt that it plans to purchase to $175 billion from $200 billion.

The Dow closed up 30.23 points, or 0.3%, at 9802.14, marking its second increase in three sessions. The Standard & Poor's 500 closed up just 1.09, or 0.1%, at 1046.50. And the Nasdaq Composite was down 1.80, or 0.1%, at 2055.52.

Traders were initially relieved by the Fed's decision, but the euphoria waned by late in the day. Among the market's weak points were financial stocks, which fell broadly as a group, and small-cap companies. Both categories have suffered lately as investors have shed risk from their portfolios - a trend that the Fed announcement may not necessarily reverse in the weeks ahead.

"After some of those [stocks] had outperformed higher-quality, larger-cap companies, the more relatively attractive those higher-quality, lower-risk assets have become," said Julius Ridgway, an investment adviser. "We just wouldn't jump on the bandwagon of risk right now at all."

In Asian trade Thursday, stock markets were mostly lower, weighed down by Wall Street closing off its highs and as the Fed's policy statement provided few fresh cues.

Japan's Nikkei 225 was down 1.3%, with South Korea's Kospi Composite down 1.7%. Hong Kong's Hang Seng index was last seen 0.6% lower.

"It's highly likely that after the 'non-event' Fed decision Asian markets will trade flat to slightly lower in coming days, with the next catalyst for stocks to move definitively in a particular direction being the U.S. nonfarm payroll report due out Friday," said Peacock.

In the currency markets, traders were looking past the Fed statement and focusing on the monetary policy meetings of the European Central Bank and the Bank of England, as well as the U.S. jobs data due Friday.

"The Fed's on hold, the global economy is recovering and that's negative for the dollar," said Adam Boyton, currency strategist at Deutsche Bank. "There's no reason the euro couldn't pass $1.55 by the end of the year," he added.

However, by 0730 GMT, the euro was lower as Japanese exporters settled accounts, and was trading at $1.4841, down from $1.4861 in late New York trading Wednesday. The dollar was quoted at Y90.35, down from Y90.72.

Meanwhile, spot gold was at $1088 per troy ounce, up $2.62 from the New York close, while in the oil market Nymex December oil futures were down 61 cents at $79.79 per barrel after settling 80 cents higher Wednesday.

European bond markets opened on a weak note, with the December bund futures contract last seen at 121.25, down 0.50.

-By Ishaq Siddiqi, Dow Jones Newswires; +44-20-7842-9488; ishaq.siddiqi@dowjones.com

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(END) Dow Jones Newswires

November 05, 2009 02:36 ET (07:36 GMT)


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