London pre-open: FTSE to fall after Japan falls into recession

17th Nov 2014 07:35

News of Japan falling into a recession is expected to provide a drag on the FTSE and other European markets on Monday morning.City sources predict the FTSE 100 will open around 30 points lower than Friday's close of 6,654.37."The trading week got off to a woeful start in Asia overnight as news that Japan contracted by 0.4% in the third quarter, leaving the country in a technical recession, drove the Nikkei to near 3% losses and raised serious questions about the planned sales tax hike next year," Alpari market analyst Craig Erlam revealed."The sales tax hikes have been a key component of Abenomics - Japanese Prime Minister Shinzo Abe's attempts to return inflation to 2% and increase growth in the country through fiscal and monetary stimulus and reforms - but it appears that the first hike from 5% to 8% has taken its toll on the economy more than expected."Markets will now be looking to see if the further hike to 10% that has been planned for next October will be delayed and also whether there will be a further monetary loosening following the recent unexpected increase of the Bank of Japan's asset purchase programme.Meanwhile, Monday's session is due to be a quiet one, although we will see the release of Eurozone trade balance figures and US October industrial production figures.European Central Bank (ECB) President Mario Draghi is also due to testify on monetary policy before the Committee on Economic and Monetary Affairs in Brussels."This could be quite a big market event today as not only is Draghi likely to be heavily questioned on the ECB's efforts to avoid deflation thus far, which are showing little sign of working, he's also likely to be pressed on further attempts to lift its balance sheet to €2trn," continued Erlam."Clearly the markets want to see quantitative easing and while Draghi is happy for investors to believe this is a strong possibility, I don't think some policy makers are keen on it in the slightest. The markets don't really care about this though, they just want to be led on which is why market volatility could pick up around this testimony."In company news, Reckitt Benckiser Group (RB) unveiled the detailed proposed timetable for the demerger of its RB Pharmaceuticals business, which will have a separate UK listing under the name of Indivior. "The board of RB considers that the demerger is in the best interests of both RB and Indivior and will result in a stronger future for both," the group said.Mining giant Rio Tinto and China's Sinosteel Corporation announced plans to press ahead with talks for a second extension to the Channar Mining iron ore joint venture in Western Australia's Pilbara region. The original Channar joint venture was signed in 1987 to produce 200m tonnes of iron ore and was extended in 2010 to produce a further 50m tonnes of iron ore.Talk Talk has announced a new multi-year commercial agreement with Telefónica UK, under which Telefónica UK will provide TalkTalk with access to its 2G, 3G and 4G services in the UK. "This is a significant commercial relationship for us as we build upon our success to date in mobile," the FTSE 250 group said.