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London open: markets tentative ahead of economic data

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Markets opened tentatively on Thursday morning as investors awaited economic growth figures from both sides of the Atlantic due out later on.

Wall Street benchmarks ended Wednesday’s session slightly lower with the S&P 500 finishing in the red for the fifth straight day – its longest losing streak this year – as investors continued to view US budget negotiations in Washington with caution. Markets are hoping that politicians can agree on a extension to the current debt-ceiling limit of $16.7tn ahead of the deadline on October 1st to avoid a government shutdown when the new fiscal year begins.

“There will be a little more focus on economic data on Thursday, with investors in desperate need of a boost following another long drawn out battle over the debt ceiling in Washington,” said Market Analyst Craig Erlam from Alpari.

“It seems as though optimism is being drained out of investors on a daily basis at the moment, prompting risk assets such as equities to continually grind lower.”

The second and final revision of UK gross domestic product (GDP) growth for the second quarter is expected this morning and is estimated to hold steady at 0.7%, though some analysts are predicting a small upwards revision as a result of the continuing improvement in economic data as of late.

Earlier this month Chancellor George Osborne said the UK economy was “turning a corner” but warned that unemployment and the deficit were “still too high”.

Over in the US, the progress of the economy is also being closely watched amid debt-ceiling talks and the potential of a Federal Reserve stimulus cut next month. The consensus forecast is for an upwards revision to annualised growth of 2.6% from the previous estimate of 2.5%.

Jobless claims figures from the States will also be in focus today given that an improvement in the labour market remains a deciding factor in the decision on whether or not to cut stimulus. Markets are expecting a rise to 325,000 claims for the week ended September 20th from 309,000 the week before, though it should be noted that the prior week’s figure was distorted by IT issues in some regions.

“What that means this week is that if the issue has been dealt with, we could see either a huge surge in new claims in California [and Nevada] for last week, or significant revisions to previous figures,” Erlam said.

A strong high season this summer and heartening early bookings for winter holidays has led tour operator TUI Travel to hike its profit guidance for the full year. TUI shares jumped after it said it was now confident of achieving at least 11% growth in underlying operating profits for the year to end-September.

Tullow Oil also gained early on after announcing a new oil discovery in Northern Kenya. The group said results of drilling, wireline logs and samples of reservoir fluid indicate a potential net oil pay in the Auwerwer and Upper Lokone sandstone reservoirs of between 60 and 100 metres.

Compass Group rose after saying expectations for the full year were unchanged with organic revenues set to have risen by just over 4% and profit margins to have grown slightly.

High Street bookie William Hill was in the red this morning after a profit warning from rival chain Ladbrokes dampened sentiment across the sector.

British Gas owner Centrica and utility group SSE were continuing to fall after yesterday’s proposal by Labour leader Ed Miliband to freeze energy bills if the party is voted back into power in 2015.

Ladbrokes slumped after warning that 2013 profits for its digital operations would come in a long way below current market forecasts. The bookmaker said that it was yet to see “discernible improvements” in its digital business as it works through a process of integration. As a result it said it expected 2013 operating profits to be between £10m and £14m compared with a market consensus of about £27.5m.

Tour operator Thomas Cook also fell sharply after reporting a decline in bookings in the UK over summer and flat sales in Europe. In a trading update ahead of the company’s full-year 2013 results in November, the group said UK bookings were down 3% on last year with a capacity reduction of 2.5%.

Iron ore producer Ferrexpo was a high riser after Macquarie upgraded its rating on the stock to ‘neutral’ and lifted its target price from 155p to 180p.

Source: ShareCast