Gains by US equities were limited following the opening bell, with a lack of US economic data meaning that there was little to guide investors. Trading remained subdued ahead of a speech later today by Fed chairman Ben Bernanke, while higher oil prices also gave investors pause for thought.
Price of oil rises
Oil prices moved higher today, as expectations of strong US growth following Friday's non-farm payrolls data combined with worrying news from Libya. Brent crude pushed close to $120 per barrel, while US light crude remained near to $108 per barrel. News on Friday that the US economy had added 216,000 jobs, with private payrolls expanding by 230,000, has given heart to those awaiting a solid US recovery. Increased job creation means more wealth for US consumers, which will lift consumption of goods and increase the need for oil both among industry and ordinary citizens.
In Libya, forces loyal to Colonel Gaddafi reportedly bombed an oil field south of Ajdabiya. The attack comes on the day that the rebel government in Benghazi has begun selling oil produced from opposition-controlled fields, and Colonel Gaddafi may mount further attacks in order to cut of this valuable source of foreign currency for the rebels. This is a particularly disturbing development, since damage to oil refineries will not only push up prices in the short term, but will mean long-term disruption to production levels until facilities can be repaired.
Spanish PM
Investors concerned about the sovereign debt crisis in Europe were given another element to add to the mix over the weekend, with news that the incumbent prime minister of Spain, Jose Rodriguez Zapatero, would not seek a third term in office. Mr Zapatero has succeeded in steering through a difficult austerity programme, as Spain struggles to avoid being yet another domino in the crisis. As a result of his efforts, delivered despite strident opposition, Spanish bond yields have come down even as those in neighbouring Portugal have gone ever higher. His Socialist party, which is already trailing in opinion polls, will now have to find a new candidate, and this will damage their chances of success in the March 2012 elections. The turmoil will likely push Spanish bond yields higher, as investors become more nervous about holding Spanish government debt, since Mr Zapatero is now effectively a 'lame duck' and any measures he succeeds in passing could be undone by a new administration.
US equities – Southwest Airlines
By 3.30pm (London time), the Dow Jones was 13.97 points (0.11%) higher at 1239.69, and the S&P 500 was up 1.2 points (0.09%) at 1333.61. The Nasdaq 100 however fell back 7.73 points (0.33%) to 2335.19.
Southwest Airlines fell 2% after the market opened, to $12.37, after the company cancelled 70 flights scheduled for today due to safety concerns. One of the firm's jets made an emergency landing on Friday with a hole in its fuselage and Southwest has begun carefully checking all of its older Boeing 737s.
UK afternoon trading – BP, Alterian
The FTSE 100 managed to make further gains during the afternoon session despite the lack of direction from US markets, with the mining sector remaining solid. By 3.30pm (London time), the leading index was up 0.32% at 6028.72.
BP has announced the sale of its ARCO Aluminium subsidiary to a Japanese consortium, for $680 million in cash. The deal means that BP has so far divested itself of more than $24 billion in non-core assets, helping it to raise funds to offset the cost of cleanup operations in the Gulf of Mexico, arising from the Deepwater Horizon oil spill. BP aims to raise up to $30 billion in disposals by the end of 2011. BP shares gained 0.72% to 473.39p.
Alterian, a provider of marketing software, dived 18% to 156.02p after the company issued a profit warning and said that its chief executive would be standing down. Full-year revenues will be 10% below expectations due to contract delays involving a major partner, and are now forecast to be £42-44 million, instead of £46-49 million. Alterian said that it still expected that the negotiations would be successful, but it could not be certain of the timing of any deal. Chief Executive David Eldridge will leave his role but will continue at the company until a successor is found.
Commodity prices rise again
Oil is not the only commodity enjoying a good start to the week. Copper, palladium and platinum have all gained today, helped by the aforementioned US non-farms report that has boosted risk appetite around the world. At the same time, gold and silver are up thanks to inflation worries; higher oil prices will have a knock-on effect on prices of food and finished goods, and investors have returned to precious metals for their use as a store of value against inflation. May silver futures pushed past $38 per ounce, while gold hit $1440 per ounce during the course of the day.
Ben Bernanke speech
Fed chairman Ben Bernanke will speak in Atlanta to a financial conference at 12.15 am (London time). The topic of his speech will be 'Clearing houses and Financial Stability', but his words will be keenly watched to see if he has become more hawkish in his outlook. Expect some gains for the US dollar if he signals an intent to tighten monetary policy during this year.
