The FTSE 100 continued to drop this morning, as investors trying to navigate between the twin problems of Japan and the Middle East were hit by a downgrade of Portugal and bad news on UK unemployment.
Oil prices
Oil prices have risen again this morning following action by security forces in Bahrain. Police and military forces cleared Pearl Square in Manama, Bahrain's capital, where anti-government protests have been continuing for several weeks. Two people were reported to have been killed and 200 injured. Bahrain's rulers declared martial law yesterday, emboldened by the arrival of troops from Saudi Arabia and other neighbouring states as part of the Gulf Protection Force. Although Bahrain has strategic importance as the home of the US Fifth Fleet, which helps protect Western interests in the Gulf, its real significance for oil prices lies in its proximity to Saudi Arabia. Bahrain was the first Gulf state to suffer protests, and the discontent again raises fears that disruption could spread to Saudi Arabia, at which point oil prices may surge again.
Portugal downgrade
In a world beset by natural disasters and civil unrest the actions of a ratings agency may be small beer, but the downgrade of Portugal by Moody's served as a reminder that investors have not two but three crises to keep in mind. The agency cut Portugal's rating by two notches, from A1 to A3 with a negative outlook, saying that subdued growth prospects and high government borrowing costs. There was also a risk, Moody's said, that the government would fail to meet its rather ambitious fiscal consolidation targets. Portugal returns to bond markets today with the auction of €1 billion in one-year bonds, and this will be seen as a useful indicator of market sentiment following the new austerity measures announced last week.
UK unemployment
The gloomy atmosphere was not helped by data on UK unemployment, which showed that the number of people out of work rose by 27,000 in the three months to January. The rise brings the total to 2.53 million, the highest level since 1994, while the jobless rate reached 8%, a ten-month high. The one bright spot was a fall in the number of people claiming benefits, which dropped by 10,200 to 1.45 million. The mixed figures point to continuing problems in the UK labour market, which will help fuel further debates about the wisdom of an interest rate rise in the near future by the Bank of England.
UK stocks - banks & miners, Greggs, Marston's, French Connection
By 10.30am (London time) the FTSE 100 was down 0.8% at 5650.36, and the FTSE 250 had lost 0.25% to 11,123.14.
Banks and mining stocks led the leading index lower as a result of the Portugal downgrade and continuing aversion to risky assets such as miners. Barclays and Standard Chartered fell 1.5% and HSBC slumped 2.5%, while Fresnillo was the biggest loser among the miners, down 1.4% to 1411p. As with yesterday, the leading gainer was helped by a broker note. Credit Suisse upgraded Associated British Foods from 'neutral' to 'outperform', with a target of 1060p.The shares rose 3.5% to 972.5p.
Greggs, the ubiquitous High Street baker, jumped 5% to 489.5p after profits rose 8% in 2010 to £52.5 million. Six million customers a week used the chain's stores, with sales up 0.2% like-for-like to £662 million. Sales for the year so far are up 0.4% LFL, and Greggs remains confident that it will open 600 stores in 2011. The one bleak note was a cautionary reference to increased commodity prices that will put upward pressure on ingredient costs.
Pub group Marston's managed to lift sales despite reductions in consumer spending, with like-for-like sales up 2.4% for the 23 weeks to 12 March. Food sales were particularly buoyant, up 4.7% LFL, and even drinks sales, which have been declining in recent years, showed LFL growth of 1.5%. In an encouraging development for lovers of real ale, premium cask sales rose 5%, helped by the increasing popularity of proper British beer amongst 20-34 year olds. The shares edged back 0.3% to 92.9p.
Fashion retailer French Connection saw pre-tax profits soar from £0.7 million to £7.3 million for the year to 31 January, having predicted at least £6.8 million in February. Group gross margin was up 50 basis points to 52%, but the firm remains cautious about the outlook in the short term. The dividend for the year was raised from 0.5p to 1.5p. French Connection shares jumped 7% to 130p.
US pre-market
Having begun the day higher, June Dow and S&P 500 futures are now in the red, down 0.2% and 0.3% respectively. On the economic front, February US housing starts and building permits are out at 12.30pm (London time), and these are forecast to decline 5% and rise 1.2% respectively. At the same time the February producer price index will be published, and this is expected to show that prices rose 0.7% during the month, less than the 0.8% seen in January.
