European Factors to Watch-Shares seen steady, focus on central banks

Thu Jan 9, 2014 2:37am EST

LONDON Jan 9 (Reuters) - European shares headed for a steady open on Thursday, with investors seen staying on the sidelines before policy meetings that could provide hints about future actions by the European Central Bank and the Bank of England.

Both central banks are likely to keep interest rates on hold later in the day, but the ECB is expected to remind markets its policy could ease further if inflation stays too low or money market conditions tighten.

"Another flat start is expected today as traders continue to wait and see what headwinds the central banks will drop on the markets ... it will be the attempt to massage market expectations with their words rather than actions that will captivate attention," Capital Spreads said in a note.

"Bulls are hoping for a large dose of dovishness at the ECB press conference as (President) Mario Draghi tries to stave off deflation worries and hopes are brewing that (BoE Governor) Mark Carney will continue with his penchant for surprise statements in an attempt to push back expectations of an interest rate hike."

Investors were also reluctant to place strong bets before Friday's U.S. jobs data that could determine how quickly the Federal Reserve will further reduce its massive stimulus. The Fed's bond buying operations helped equities to perform strongly and scale new highs last year.

Minutes of the Fed's Dec. 17-18 policy meeting, released late on Wednesday, showed many members of the policy-setting committee wanted to proceed with caution in trimming the asset purchases.

Analysts said a strong reading of the U.S. jobs report after recent encouraging data could boost the central bank's confidence in the sustainability of the economic recovery and prompt it to further cut its liquidity operations sooner rather than later.

Economists polled by Reuters have forecast 196,000 jobs were added to the U.S. economy in December.

"An acceleration of the employment creation would be good news for the American economy but could cause trouble for the Fed. A continuous increase of private payrolls far above 200,000 a month would mean that the pace of tapering at $10 billion wouldn't be fast enough," Koen De Leus, senior economist at KBC, said.

At 0730 GMT, futures for the Euro STOXX 50, Britain's FTSE 100 , Germany's DAX and France's CAC were down 0.06 percent to up 0.06 percent.

The pan-European FTSEurofirst 300 ended 0.1 percent higher at 1,321.19 on Wednesday, just shy of a 5-1/2 year high hit earlier in the session, but Spain's IBEX, Portugal's PSI 20 and Greece's ATG index rose 0.7 to 3.3 percent on rising confidence about a recovery in peripheral euro zone economies.

The broader FTSEurofirst 300 index has been trading in a narrow range since the start of the year after climbing more than 16 percent last year, with investors looking for fresh catalysts before strongly pushing the market higher again.

Analysts expect that European equities will post strong gains in 2014 as well, but the market remains vulnerable to choppy moves in the coming weeks when companies announce their fourth-quarter earnings numbers.

Aluminium giant Alcoa will unofficially kick off the U.S. earnings season on Thursday, while European company results will gather pace in the second half of the month. Focus will also be on trading updates from leading companies.

A trading update from Tesco, the world's third biggest retailer, showed it posted another heavy drop in underlying sales in its main British market in the Christmas trading period.

------------------------------------------------------------------------------ > Asian shares ease, dollar firms; Friday's US jobs in focus > S&P 500 ends flat in wake of Fed minutes > Nikkei falls as market stays risk averse before U.S. jobs data > U.S. bond prices fall on upbeat data, Fed minutes > Dollar hits seven-week highs; ECB and China data eyed > Gold treads water after 2-day drop, US data in focus > London copper drifts lower as caution on Fed stimulus drags > Brent edges up towards $108 on supply concerns

COMPANY NEWS

TESCO

The world's third biggest retailer posted another heavy drop in underlying sales in its main British market in the Christmas trading period, adding to pressure on management to end a run of poor results.

ING GROEP

ING said it will make its defined benefits pension fund financially independent, resulting in an after-tax charge of about 1.2 billion euros ($1.63 billion) and paving the way for the IPO of its insurance business.

MARKS AND SPENCER

Marks & Spencer's much vaunted new ranges failed to prevent the British retailer's clothing sales falling for a tenth consecutive quarter, though the firm avoided a formal profit warning thanks to a solid performance from food.

WM MORRISON - The British grocer posted a sharp fall in like-for-like sales over Christmas, blaming the "disappointing" performance on difficult market conditions, heavy discounting by rivals and the lack of a full online offer and saying that it now expected its full-year underlying profit to be towards the bottom of the range of current market expectations.

WARTSILA, ROLLS-ROYCE

Rolls-Royce is in talks to buy the ship engine unit of Finland's Wartsila, Bloomberg reported late on Wednesday, citing three people familiar with the matter.

SACYR

The Panama Canal on Wednesday rejected a proposal that it pay $1 billion to continue work on expanding the waterway, and warned the building consortium behind the project that it could bring in others to finish the job.

NOVARTIS

Novartis AG is in talks with Merck & Co Inc to exchange its animal-health and human vaccines businesses for the drugmaker's over-the-counter health-products unit, Bloomberg reported, quoting people familiar with the matter.

DANONE

French food group Danone said it would sue wholesale dairy exporter Fonterra and stop buying products from the New Zealand firm following a contamination scare that sparked the recall of infant milk formula across Asia.

KBC

Belgian financial group KBC will not exit Hungary, the head of its business in the central European country said on Wednesday, despite a tough outlook for profitability and pressure from the authorities for consolidation.

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