The FTSE experienced an uneven start, initially slipping on the back of some profit-taking in the heavyweight mining sector, before regaining its composure and recovering lost ground by mid-morning, thanks to a banking sector rally and renewed bid activity.
By 11.30am (London time) the FTSE 100 Index was trading 19.53 points (+0.35% higher at 5622.07 while the broader FTSE 250 was 8.87 points (+0.08%) above its previous close at 10557.06.
Banks performed strongly today, with Standard Chartered 1.6% higher at 1928p after Nomura recommended buying the bank's shares. Barclays advanced 1.5% to 318.1p, Royal Bank of Scotland rallied 1.75% to 49.88p and Lloyds Banking Group gained 1.7% to 78.71p. The chief executive of Lloyds Banking Group Eric Daniels announced yesterday that he will retire in a year's time.
European banks were in the spotlight as well, with Bank of Ireland up 3.24% to €0.67 after Goldman Sachs said the lender's Irish-listed shares are undervalued at current prices. Analysts at Goldman said Bank of Ireland shares would find fair value at €0.95. Earlier this month Moody's raised Bank of Ireland's financial strength rating from D to D+, citing a 'stable' outlook.
Meanwhile, BNP Paribas rose 1.7% to €55.58 a share after chief executive Baudouin Prot told French newspaper Les Echos that the bank would not need to raise more capital to comply with the new Basel III rules – quashing earlier fears that it may have to recapitalize its balance sheet. The bank was also upgraded from 'neutral' to 'buy' at Goldman Sachs today.
Elsewhere, Deutsche Postbank gained 0.9% to €25.12 after Deutsche Bank offered to acquire the country's biggest retail lender by clients for €25 a share. Deutsche Bank, which already holds a stake just below 30% in Postbank, said it will finance the deal using proceeds generated from a €10.2 billion rights issue. The Postbank acquisition forms part of Josef Ackermann's strategy to reduce Deutsche Bank's dependency on investment banking income and to bolster its retail banking business. In my opinion, regulatory reforms are likely to encourage further deals of this nature, so keeping an eye on retail banks could be quite profitable.
Wellstream Holdings was also in the limelight. Shares of the British oilfield services group soared 27.3% to 775p after saying it had 'received a number of preliminary approaches regarding a possible offer for the company'. The company said there was 'no certainty that an acceptable offer will ultimately be made.'
Miners were somewhat mixed, meanwhile, with Randgold Resources 0.7% lower at 6390p and Essar Energy sliding 1.9% to 450.20p. Eurasian fell 1.6% to 900p, after announcing that it has acquired Bahia Minerals for $670 million.
Dana Petroleum was unchanged at 1792p, despite being cut from 'outperform' to 'neutral' by Credit Suisse. The investment bank downwardly revised its oil price estimates today, lowering its West Texas Intermediate (WTI) oil prices to $76.90 per barrel from $79.10 for 2010 and to $72.50 from $80 for 2011. The investment bank said it favors 'what we view as reasonable exploration programs that are either well-diversified across numerous prospects or do not have success priced in yet.' Meanwhile, oil explorer Cairn Energy gained 2.9% to 439p, after it said that a well currently being drilled in Greenland found evidence of oil, raising hopes that the region could become a new oil producing basin.
In other news, the Irish government managed to sell €1 billion ($1.3 billion) of eight-year bonds and €500 million of three-year bonds. The National Treasury Management Association had planned to sell between €1 billion to €1.5 billion worth of bonds. The average yield on the January 2014 bond was 4.77%, up from 3.1% in a previous sale of the same issue in May. The average yield on the 2018 bond was 6.02%, up from 5.09% in a June auction.
Britain today posted a record budget deficit for August, blaming higher interest payments on index-linked gilts. The Office for Nationals Statistics said public sector net borrowing came in at £15.302 billion, above consensus estimates of £12.5 billion.
Looking ahead, the US housing starts and building permits for August will be released this afternoon at 1.30pm (London time). According to Bloomberg News, builders began construction on 550,000 homes last month, up 0.7% from July while building permits, a sign of future construction activity, is expected to drop to 560,000 in August from 565,000 the prior month.
The Federal Reserve's interest rate decision will be released at 7.15pm today. Interest rates are widely expected to remain unchanged at a record low of 0% - 0.25%. There has been some talk about the possibility of seeing a second round of quantitative easing, although in my opinion it is still too premature and a mild form of stimulus is more likely. If this is the case then the US dollar may encounter some weakness, although it is interesting to point out that the market seems to be pricing-in this possibility. By 11.30am (London time) the US Dollar Index was 0.4% lower at 80.997.
