The FTSE 100 lost ground for the fourth consecutive day as the crisis in Libya continued to dominate headlines around the world. However, strength in the banking sector helped limit the extent of losses.
BoE Minutes
The moment for which financial markets have been waiting finally arrived this morning, with the publication of the minutes of the February meeting of the Bank of England's Monetary Policy Committee (MPC). The minutes revealed that a new member joined the hawkish axis on the committee, with chief economist Spencer Dale adding his voice to that of Andrew Sentance and Martin Weale in calling for a rise in interest rates. Of even more importance was the revelation that Andrew Sentance became even more hawkish, and had called for a rise of 50 basis points in the base rate, rather than just 25 points as before. Spencer Dale's Damascene conversion marks the first time that a career bank official (Mr Sentance and Mr Weale being 'external' members who are not bank employees) has argued for a change in policy since November 2009. Perennial dove Adam Posen also indicated that he has become more worried about inflation, noting that 'a sustained upward trend in global demand prospects, or a shift in sentiment against sterling, could outweigh the domestic forces pushing down on inflation'. [1] In addition, the minutes showed that those members who had voted for an unchanged interest rate had conceded that the case for tighter monetary policy had grown in strength.
Overall, the minutes point to an earlier-than-expected rate rise, sooner than the May change that markets had expected. However, the minutes also said that any tightening in policy would depend on how economic data unfolds over the coming weeks. The next MPC meeting will occur on 9 and 10 March.
Middle East crisis
While the events in Libya, where Colonel Gaddafi continues to hold on to power despite international condemnation, have captured the popular imagination, it may be that these are a distraction for international markets. A report from Barclays Capital warned that violence in Bahrain posed a greater risk to regional stability, since its proximity to Saudi Arabia raises fears that unrest could spread to that nation's Eastern Province. While Libya provides some oil to the West, the fluctuations in the price of oil that we have seen so far will be as nothing compared to what could happen if protests erupt in Saudi Arabia, as this nation holds around a fifth of the world's oil reserves.
Oil prices continued to rise this morning, with market commentators noting that every $5 rise in prices subtracts 0.2-0.3% from US GDP growth. April crude oil futures (WTI) traded 0.23% higher at $95.64 a barrel and Brent increased 1.04% to $106.86.
UK equities - banks & miners, Rexam, Travis Perkins
By 10.30 am (London time), the FTSE 100 was down 37.07 points (0.62%) to 5959.69 and the FTSE 250 had lost 65.92 points (0.57%) to 11586.49.
Oil and mining stocks dragged the leading index down this morning, as concerns rose that the Middle East crisis would spread to engulf yet another nation. Copper prices fell as risk-aversion continued to reign among investors, with Antofagasta dropping 1.8% to 1358p and Rio Tinto shedding 1.16% to 4290p. However, the banking sector helped to stave off further losses by the FTSE, with the 'Big Four' of Barclays, Lloyds, RBS and HSBC all up at least 0.5%.
Rexam, the consumer packaging giant, reported a 45% growth in underlying profit for 2010, and it expects further progress in 2011. Earnings from continuing operations leapt from £134 million in 2009 to £338 million last year, and the firm said that its focus on cost control and improving its return on capital was behind the better performance. The final dividend was increased by 50%, to 12p per share. Rexam shares declined 3.8% to 356p.
Builders' merchant and DIY specialist Travis Perkins saw trading improve in all its divisions last year, helping group revenue to rise 5% on a like-for-like basis to £3.2 billion. Adjusted profit before exceptional items was 20% higher at £217 million. The stronger trading environment has continued into 2011, with like-for-like sales higher across all businesses, although this was partially due to weaker comparatives from poor trading in January last year. Shares in the group rose 0.4% to 1043p.
US pre-market
Futures for the Dow and S&P 500 point to a rally on Wall Street this afternoon following the heavy losses yesterday, with futures contracts up 0.35% and 0.24% respectively. At midday (London time), mortgage applications data for last week will be published, while January month-on-month home sales data will emerge at 3pm (London time). This is expected to show a small decline of 1.5% compared to the 12.3% increase of a month earlier.
