Wall Street was off to a slow start this afternoon as investors awaited details of the US budget, while continued protests across Egypt and neighbouring regions limited gains in riskier assets.

Obama budget to be revealed

President Obama will be releasing the details of his 2011 budget today with plans to reduce the deficit by $1.1 trillion over 10 years. The full details are scheduled to be released at 3.30pm (London time), with some of the measures to cut the deficit including a reduction in subsidies and grants for areas like heating and water treatment, a freeze on non-defence discretionary spending for five years, and increased taxes for married couples earning over $250,000. The deficit is expected to rise to $1.645 trillion this year, before falling to $1.101 in 2012 as payroll tax and unemployment benefits expire. By 2017 the deficit may fall to $627 billion, or 3% of GDP.

The budget is likely to face criticism that it does not address the rising costs of Medicare, Medicaid and social security. Attempts to improve these aspects of the Federal budget will require bipartisan support from the Republicans before a serious effort can be made to implement any changes. In his most recent speech, Fed Chairman Ben Bernanke gave the government a grim warning that the fiscal imbalance will be fixed one way or another, but the question is whether it will happen in an orderly way or 'as a rapid and painful response to a looming or actual fiscal crisis.'

Middle East contagion

Following the ousting of Egyptian President Hosni Mubarak, order is yet to be restored in the region, with labour leaders now protesting for better pay and conditions. Investors are also waiting to hear the process the army will take to restore government control in the country. It seems that protestors in neighbouring states have been emboldened by the developments in Egypt and are now holding their own protests. Protestors in Yemen, Bahrain, Libya, Iran and Algeria have been clashing with authorities, and there is a risk that these protests could escalate and cause further disruptions across the Middle East. The unrest across the region may keep a lid on riskier assets as investors wait for further developments to unfold.

US equities

By 3.15pm (London time) the Dow Jones Industrial Average had lost 27.51 points (-0.22%) to 12,245.75, the S&P 500 was trading 0.36 points higher (+0.03%) at 1329.51 and the Nasdaq 100 had risen 4.94 points (+0.21%) to 2384.09.

Banks were broadly higher this afternoon, bolstered by the recent economic data which suggest the US recovery is taking hold. As the US economy improves, interest rate expectations will begin to rise, supporting bank profits. Bank of America gained 0.64%, JPMorgan Chase rose 0.62% and Citigroup added 0.41%.

Energy and mining stocks helped the S&P 500 stay in positive territory after Cliffs Natural Resources, Freeport McMoRan Copper & Gold and Peabody Energy rose 4.38%, 3.87% and 3.04% respectively. Halliburton and Marathon Oil also supported the index, rising 3%.

GE gained 1.22% to $21.59 after announcing it would be buying energy services firm John Wood Group for $2.8 billion. GE has recently been making acquisitions within the oil and gas services business, with the purchase of Wellstream last December and of Hydril and Vetco Gray in previous years. The purchase allows GE to widen its product offering to include submersible electric pumps.

UK equities

The FTSE 100 pared earlier losses to trade basically unchanged by 3.15pm at 6062.01, while the FTSE 250 rose 40.42 points (+0.34%) to 11,838.19.

Engineering firms Weir Group and Invensys were among the biggest gainers on the FTSE 100 this afternoon. The Financial Times cited possible takeover talks from German-based Siemens after CEO Joe Kaeser said the company has reached the maturity to make significant purchases. Weir was 5.84% higher, while Invensys gained 2.67%.

Resource stocks were mixed this afternoon. Essar Energy and Petrofac rose 2.35% and 2.15% respectively, but Royal Dutch Shell and Cairn Energy fell around 0.9%. The banks were also split, with Standard Chartered and Royal Bank of Scotland rising north of 1%, while Lloyds and HSBC lost 1.56% and 0.84% respectively.

Supporting the FTSE 250 was a 13.8% gain in John Wood Group, which rose following GE's offer. Other gainers on the FTSE 250 this afternoon include Daejan Holdings, PartyGaming and Pace, which rose 4.9%, 2.98% and 2.48% respectively.

Forex

The US Dollar Index looked to be fading by 3.15pm (London time) to trade 0.18% higher at 78.605, after a high earlier in the session of 78.873. EUR/USD was trading 0.16% lower at $1.3485 as EU officials meet in Brussels today and tomorrow to discuss the region's rescue facility.

Sterling was slightly higher at $1.6000 ahead of the UK inflation reading tomorrow. UK CPI may rise to 4% tomorrow, which will put increased pressure on the Bank of England to lift interest rates. Speculation that the central bank may move on rates earlier than previously anticipated has been supporting sterling in recent months.

AUD/USD rose 0.38% to $1.0028 after domestic home loans increased by more than expected, while China's robust trade data confirmed that Australia's growth prospects remain firmly intact. The RBA minutes will be released tomorrow, and seem likely to show interest rates will remain on hold for the foreseeable future, while China's inflation data could hurt the Aussie dollar if they rise ahead of expectations.

Looking ahead

Tuesday is a very busy day on the economic calendar. In Asia, the Reserve Bank of Australia releases the minutes of its last policy meeting at 12.30am (London time), while the Bank of Japan delivers its latest interest rate decision during Asian trading. Investors will be keeping a close eye on China's CPI for January, which economists forecast will rise to 5.4%. At 4.30am, Japan industrial production and capacity utilisation are due, followed by machine tool orders at 6am.

At 9.30am, UK CPI and RPI are announced. Economists expect annual CPI to rise to 4% in January, while RPI may rise to 5.1%.

Eurozone fourth-quarter GDP figures will follow at 10am (London time), with annualised growth expected to accelerate to 2.1%. The EU trade balance and ZEW economic sentiment survey will also be on tap at the same time.

In the US, 1.30pm (London time) will see the release of US retail sales, import prices and the NY Empire State Manufacturing Index. Retail sales are expected to rise 0.5% in January, import prices may gain 0.8% and manufacturing activity in New York is forecast to increase to 15. Treasury international capital flows are due at 2pm, followed by business inventories at 3pm.