US equities struggled to establish a definite trend after the opening bell, as an outburst of violence in Egypt re-ignited fears about political stability in the Middle East.
A positive ADP employment report was not enough to alter the generally risk-averse feeling among investors.
Egypt crisis
The protests in Egypt, which have remained peaceful for now, looked to be turning ugly as splits emerged in the hitherto united coalition of protesters. President Mubarak's announcement that he would step down in September has divided the crowd, with some arguing that this is the best solution to maintain stability, while others continue to demand that the president step down immediately. Clashes erupted in Cairo between pro- and anti-Mubarak factions, and this prompted an outbreak of nervousness among investors. Concern about the protests had died away as the likelihood of a violent reaction from the authorities abated, but the new developments have increased fears that other parts of the Middle East could succumb to violence.
ADP employment data, mortgage applications
Hopes of further improvement in the US labour market were strengthened after a report from private firm ADP Employer Services. Employment increased by 187,000 in January, ahead of the 140,000 gain predicted in a Bloomberg poll. The upcoming non-farm payrolls report on Friday also forecasts an increase in employment of 140,000. Merrill Lynch commented that the employment situation continues to improve, albeit slowly, but that the improvement was not yet enough to bring down unemployment in any significant way.
Mortgage applications rose 11% last week in the US, according to data from the Mortgage Bankers Association. The figure had fallen 13% in the preceding week. However, market commentators warned that re-financing activity, which had kept activity buoyant, was dropping off as the pool of potential re-financing applicants shrank.
S&P downgrades Ireland
Ratings agency Standard & Poor's (S&P) downgraded Ireland's credit rating today, due to uncertainty about the size of additional capital needed to sustain the country's financial sector. The outlook was held at negative, and S&P said that it would decide by April whether it was possible to remove the negative implications, as by that point the effects of any additional bailouts of the banking sector on Ireland's debt position would become clear. The euro fell 0.2% after the news, with rumours of a potential solution to the debt crisis, which may be announced at a summit meeting on Friday, failing to provide much support.
By 3.30pm (London time), the Dow Jones had inched forward 7.23 points (0.06%) to 12047.39, but the S&P 500 had lost 0.99 points (0.08%) to 1306.6.
Shares in Time Warner rose 4.49% to $33.76 after fourth-quarter profit came in ahead of analyst estimates. Excluding one-off items, profit for the quarter was 67 cents a share, topping the 62-cent median estimate from analysts polled by Bloomberg. Revenue increased 8.3% to $7.81 billion. The company was able to top estimates after global ticket sales surged for the latest 'Harry Potter' movie and advertising revenue from cable channels beat expectations. Dividends will be raised to 23.5 cents a share for the quarter, while the company increased its share buyback authorisation level to $5 billion.
Meanwhile, internet company AOL, which was spun off from Time Warner a year ago, fell 2.01% to $23.37 this afternoon as the company struggled with advertising revenue and internet subscriptions. Total revenue fell 26% to $596 million, with advertising sales down 29% to $331.6 million. While revenue did beat analyst expectations of $587.5 million, it still highlights the difficulty the company is having competing with larger rivals like Google. Earnings from continuing operations were 70 cents a share, which beat the 46 cents a share estimate from analysts surveyed by Reuters.
After the closing bell, payments technology firm Visa and media conglomerate NewsCorp will report their fourth-quarter earnings.
London markets - Imperial Tobacco, ICAP, JD Sports & JJB Sports
Increasing skittishness about Egypt meant that the FTSE rally lost some energy during the afternoon session, although it managed to cling on to the 6000 level. By 3.20pm (London time), the FTSE 100 was up 0.72% at 6000.02.
Imperial Tobacco rose 4.7% to 1879p after it enjoyed a good first quarter's trading. An expansion in Africa, Asia and the Middle East helped to offset continued declines in the developed world. Revenue growth was 1.2%, with its big brands of Davidoff and Gauloise growing sales by 10%. Volumes declined in Greece, Poland and Spain, but the UK and Germany remained stable. Broker Daniel Stewart said that the 9% growth expected in 2011 looked to be well supported, and added that the management statement was the best piece of news seen since the installation of a new chief executive in the summer.
Inter-dealer broker ICAP was boosted by volatility in financial markets in the weeks before Christmas, with revenue in the final quarter rising by 9%. Trading was in line with forecasts, and the group continues to expect pre-tax profits of £333 - £357 million. Volatility caused by quantitative easing and global imbalances is expected to persist in 2011, ICAP said. The shares were down 1.2% at 541.5p.
JD Sports responded to press speculation and said that it was in preliminary talks with ailing competitor JJB Sports. JJB today confirmed that it would be raising £31.5 million through a new issue of shares, having announced a placing back in December after warning about a possible breach of its banking covenants. Both firms said that the discussions were at an early stage and that there was no certainty of a deal being struck. Brokers cautioned that it would be difficult to find common ground on a price tag, with Seymour Pierce noting the lack of overlap between a fashion-focused JD Sports and sports-oriented JJB Sports. JD shares rose 1.24% to 858p, while JJB stock jumped 12% to 5.15p.
