FTSE expected to open down on profit taking

WITH many US markets closed today due to the Independence Day holiday, European stocks could be presented with the ideal opportunity to cash in some of the substantial gains generated last week.

GFT quotes two-way prices on stock indices around the clock, even when the underlying markets are closed.

The FTSE 100 index is called to open down 20 points at 6,099. The German DAX is forecast to open down 22 points at 7,099, and the French CAC 40 is down 11 points at 3,773.

The FTSE enjoyed a jump of over five per cent or nearly 300 points last week; that was its best week in almost a year.

The main factor behind the rally was Greece of course, and its approval of the austerity plan which will release additional bailout funding to stave off a default – for now.

I see the move as more of a relief rally however, rather than one founded on optimism, and with no direction from American indices, consequently stocks are more prone to the profit-taking that we are forecasting today.

Beyond today there is scope for stocks to continue on their upward path, with a good dose of US economic data on the radar to provide ample trading opportunity.

The major event of the week is the nonfarm payrolls report on Friday. Consensus there was for a number around the 100,000 mark.

Key data last week surprised to the up side, including pending home sales and the Chicago purchasing managers report, as well as most significantly the ISM manufacturing index, which posted a figure of 55.3 versus expectations of just 51.8.

Many analysts have subsequently revised their non-farm estimates higher by 20 or 30,000 on the back of those positive reports, so that now the markets are probably looking for a number north of around 125,000 jobs; anything less and we could be in for some chunky profit-taking to close the week out.

Ahead of Friday, other US data will set the scene for the headline event, including factory orders tomorrow and weekly jobless claims on Thursday.

The other main focus for the UK market will be the Bank of England’s interest rate decision, due out on Thursday.

Despite inflation running at 4.5 per cent, the Monetary Policy Committee will almost inevitably keep the base rate at 0.5 per cent.

According to the minutes of the previous meeting, all but one of the MPC members had even considered additional quantitative easing.

Martin Slaney is director of global dealing operations at GFT.