FTSE preview: Japan fear, inflation due

By Ed Monk for Thisismoney.co.uk
Updated: 02:51 EDT, 12 April 2011

The FTSE 100 is expected to drop back after falls in Asian markets, with investors spooked by news that Japan has raised the severity of its nuclear crisis to the highest level, putting it on par with the 1986 Chernobyl disaster.

Financial bookmakers expect the FTSE 100 index to open down 30 to 34 points, or 0.6%. The index ended almost flat on Monday at 6,053.44 after giving back earlier gains made on the back of strength in the banking sector.

As another major aftershock rattled the earthquake-ravaged east of Japan, an official at the country's Nuclear and Industrial Safety Agency (NISA) said that the severity of the incident at the stricken Fukushima Daiichi power plant had been raised to the worst on an internationally recognised scale.

Tokyo stocks fell 2.1% on Tuesday, dropping for a second straight day, as investors sold off car and electronics makers on growing worries that the impact of the huge earthquake and tsunami which hit Japan on March 11 may be more severe than feared.

Domestically, investors' main focus on Tuesday will be UK March CPI numbers, with a rise of 0.6% expected on the month, after a 0.7% increase in February, giving a static annualised rise of 4.4%, still more than double the Bank of England's 2% target.

The BoE, which kept interest rates on hold on April 7 following its monthly monetary policy committee meeting, has warned that CPI is likely to resume its rise towards 5% in the coming months, before falling back in 2012, putting pressure on the central bank to raise UK interest rates.

Meanwhile, British retail sales fell at their fastest annual pace in nearly six years in March as high inflation and low wage growth dragged down consumer spending at a time of economic uncertainty, a survey showed on Tuesday.

The British Retail Consortium said like-for-like retail sales were 3.5% lower in March than a year ago, after a 0.4% fall in February, the worst drop since April 2005.

Total sales, a measure which includes new floorspace, fell by 1.9%, the worst drop since the BRC began collecting the data in 1995. That followed a 1.1% rise in February.

But the decline in house prices in England and Wales slowed further in March, with prices in London rising for a second straight month, the Royal Institution of Chartered Surveyors said on Tuesday.

RICS's March seasonally adjusted house price balance rose to -23 from -26, improving for the fifth month running and coming in marginally higher than economists' forecasts of a reading of -24.

February UK trade numbers will be released, with a global trade gap of £8.1bn forecast, up from a £7.057bn pounds deficit in January. The non-EU trade gap is seen rising to £4.9bn in February, up from £4.173bn pounds in the previous month.

US February international trade numbers are also scheduled for release on Tuesday.

Miners could draw support from first-quarter results from aluminium giant Alcoa which beat estimates on Monday, benefiting in part from higher raw material prices, as well as increased demand for flat-rolled products that the firm said is expected to continue into the second quarter.

There will be results today from Alliance Trust and Punch Taverns.