With the US market closed for the Martin Luther King Jr. Day holiday, trading on the FTSE was subdued this afternoon.
Declines in the banking and mining sectors weighed on the index, as European debt concerns and China's tightening policies kept investors on the sidelines.
Eurozone not out of the woods yet
Renewed doubts about the eurozone battered equity market sentiment this afternoon. EU finance ministers are meeting today in Brussels to discuss additional ways in which they can prevent the region's debt woes from escalating further. Investors are sceptical, however, that any solid agreement can be reached among members due to the rising rift between Germany and the other member states.
German Finance Minister Wolfgang Schaeuble was adamant that an increase to the European Financial Stability Facility (EFSF) was not required and that countries should focus on reducing their deficits to increase their competitiveness. It seems that rather than adhere to the short-term demands to increase the size of the fund, German officials are calling for a wider, longer-term solution to be put in place, one which will increase coordination between member nations and prevent further crises from developing.
French Finance Minister Christine Lagarde expects that a revamped facility will be announced by the end of March. Any changes to the facility will have to be supported by Germany due to the dominance they hold across the eurozone. For this reason, investors won't be holding their breath for any breakthrough announcements to come from today's meeting.
Renminbi not a tool to combat inflation
Ahead of his visit to Washington this week, China's President Hu Jintao answered a few questions from the media. Mr Hu rejected claims that a faster appreciation of the renminbi would help tame inflation in his country, saying that 'inflation can hardly be the main factor in determining the exchange rate policy.' Instead he talked down inflation as not a big worry and said 'we have the confidence, conditions and ability to stabilize the overall price level.'
While it is understandable that China does not want to raise the renminbi too quickly due to the damage it will do to their export industries, it seems rather optimistic to suggest inflation is not a concern, considering the rising food costs both in China and in the global economy and the recent rise in metal and energy prices. The confidence that Mr Hu has in taming inflation may be a sign that further tightening measures will be in store later in the year.
However, appreciation of the renminbi will continue, albeit at a slow pace, as Mr Hu alluded to his desire for the currency to have an expanded role in cross-border trade and investment.
UK equities
By 3.30pm (London time) the FTSE 100 was 16.92 points (-0.28%) lower at 5895.15, while the FTSE 250 gained 8.61 points (+0.07%) to 11,751.02. Banks were broadly lower after hopes of an immediate increase to the EFSF diminished this morning. Lloyds Banking Group, Barclays and Standard Chartered were respectively 1.95%, 1.14% and 1.05% lower this afternoon.
Commodities have also stalled since the start of the year, and China's increase in the required reserve ratio for banks did not help prices. With US markets closed today commodities were little changed, but gold and silver could see further declines in the near term if US fundamentals continue to improve. Silver miner Fresnillo was the biggest casualty on the FTSE 100 this afternoon, shedding 4.36% to 1427p. Eurasian Natural Resources and African Barrick Gold were down 1.38% and 1.74% respectively.
Looking ahead
On Tuesday the RICS House Price Balance and Nationwide Consumer Confidence survey will be released shortly after midnight (London time). Investors will also get the latest gauge on UK inflation when the Office for National Statistics publishes CPI and RPI data for December at 9.30am. In Europe, the ZEW Economic Sentiment survey will be available at 10am.
In the US, the NY Empire State Manufacturing Index is announced at 1.30pm, followed by the Treasury international capital flows at 3pm.
Citigroup will be reporting fourth quarter results before the opening bell at 1pm (London time).
Apple shares will also be in focus after CEO Steve Jobs announced that he will be taking a medical leave of absence.
