London's blue-chip FTSE 100 Index was trading marginally lower this morning, as yesterday's rally encouraged investors to lock-in profits.
The release of mixed domestic economic data didn't bode too well for the market either, as it continues to confirm fears of a slow and fragile recovery.
Figures released from the Office for National Statistics indicate that the rate of contraction in the UK economy eased again during the second quarter; UK GDP was revised to show a fall of 0.6% compared with the first quarter. This was better than the ONS' previous estimate showing a 0.7% contraction for the period. On an annual basis, UK GDP was revised to a 5.5% contraction. This was also slightly better than last month's preliminary reading for a 5.6% drop. The upward revisions were almost entirely due to stronger estimates for domestic construction output.
However, a separate report from the Bank of England indicated that the number of new mortgage approvals fell for the first time in ten months. The central bank reported 52,317 mortgage approvals for August, down from the 52,404 registered in July. This statistic doesn't bode well for the housing market, although the drop in mortgage approvals may be a seasonal factor. Other figures from the BoE reveal that personal debt rose by £700 million last month, taking the outstanding amount up to £1.457 billion.
By around 10.30am, the FTSE was 25.53 points (-0.46%) lower at 5142.17, while the broader FTSE 250 was 8.88 points (+0.10%) above its previous close at 9178.28. Resource shares and house builders exerted the most pressure on the blue-chip index this morning.
Miners and energy majors fell on the back of weakness in underlying commodities. Lonmin, Anglo American, Kazakhmys and Xstrata were among the mining sector's worst performers, down 3.64% to 1641p, 2.33% to 1049p and 2.3% to 907p respectively. In the meantime, Tullow Oil and BP underperformed the energy sector, with the former down 1% to 1145p and latter 0.64% below its previous close at 555.40p.
House builders were also in the red today following a bearish note from Credit Suisse. The broker cut the sector's rating from 'overweight' to 'market weight', saying the 'UK has moved from top to bottom of our regional economic scorecard...household leverage and house price valuations are more extended in the UK than [in the] US, and its structural government deficit is worst in the OECD. We therefore reduce exposure to domestic UK sectors.'
Persimmon traded 2.2% lower at 458.5p, Bellway fell 1.3% to 826p and Bovis Homes declined 0.9% to 466.4p. Hammerson fell 1.8% to 402.10p and Land Securities lost 1.9% to 644p.
In contrast, domestic banks gained after BNP Paribas, France's biggest bank, launched a E4.3 billion cash call in order to buy itself out of a government bail-out. This is a sign of confidence for the sector and explains why UK banks are reacting positively to the news. According to Bloomberg, the bank is offering 107.6 million new shares at E40 a piece. This represents a 30% discount to Monday's closing price.
Barclays, which is said to be in talks to buy Standard Life's banking unit, was trading 1.45% higher at 370.3p while Lloyds Banking Group advanced 1.9% to 105.70p. Royal Bank of Scotland jumped 2% to 52.65p while Standard Chartered gained 1.3% to 1529p.
Life insurers were also in vogue, predominately on speculation about further consolidation across the sector. Aviva was 3.2% higher at 432p, Legal & General jumped 4.7% to 82.7p, mainly on takeover speculation, while Standard Life gained 2% to 211.1p.
Elsewhere, Compass Group climbed 2.5% to 368.7p after forecasting 14% earnings growth, mainly driven by cost efficiencies and favourable currency movements. The world's largest contract caterer also forecast that demand would rebound in the medium term.
It is important to note that China has confirmed that it will continue to implement stimulus policies, as domestic demand is still weak and the foundation for economic recovery is unstable. The country also intends to cut the price of diesel and gasoline. In the meantime, the Financial Times has reported that a Chinese state-owned oil company is planning to acquire a large stake in Nigeria's richest oil blocks.
Looking ahead to the US releases, the S&P/Case-Shiller Home Price Index is scheduled for release at 2pm (London time), followed by the Conference Board's monthly Consumer Confidence Index at 3pm and the ABC/Washington Post's weekly Consumer Confidence Index at 10pm.
Dow & S&P 500 futures traded marginally lower this morning, suggesting the market currently expects Wall Street to open lower today.
