The downtrend was firmly back in force this morning, with the FTSE falling to a fresh three-month low of 5044.21, following additional selling pressure across US equity markets last night.
Fears over rising deficits in small eurozone countries and the potential for widespread sovereign debt defaults have been partially responsible for today's stampede.
There is also caution ahead of this afternoon's US nonfarm payroll figures which are, according to Bloomberg's median forecasts, expected to show the American economy adding 15,000 jobs in January.
But the recent weak trend in initial jobless claims has cast some doubt on whether the payroll prediction is achievable – and without a positive payroll figure, we can pretty much scrap speculation over the existence of pent-up demand in the US economy – at least for the time being.
Heightened scepticism over the earnings outlook of major companies also weighed on sentiment.
Yesterday we had energy bellwether Shell deliver bleak results, and today we have BG Group joining the list of companies unveiling disappointing results. ICAP, the interbroker dealer that was struck by President Obama's proposed reforms on financial risk-taking in the banking sector, also joined the list.
BG Group shed 4.3% to 1099.5p this morning, after unveiling a 38% drop in fourth quarter earnings. The UK's third-largest natural gas producer said net income fell to £465 million from £756 million a year earlier as a result of lower gas prices.
ICAP plunged by 18% to 299.6p this morning, after downgrading its full-year profit forecasts on the back of a slowdown across newer businesses, which are taking longer to achieve profitability. The company said it expects pre-tax profits to come in between £295 million and £315 million, down from earlier guidance of £309 million to £354 million.
Separately, embattled airline company British Airways (BA) announced a surprise operating profit of £25 million in the third quarter, beating predictions for a £132 million loss. The company attributed the improvement to its cost reduction programme.
Disappointingly, however, the airline's Chief Executive Officer Willie Walsh said he still expects the company to make 'record losses' this year. BA’s shares fell 1.2% to 208.8p.
By 10.45am (London time), the FTSE 100 had declined 87.84 points (-1.7%) to 5051.47, while the broader FTSE 250 was 204.81 points (-2.22%) below its previous close at 9019.03.
As usual, banks and miners weighed the most on the blue-chip index.
Lloyds Banking Group was the sector's worst performer, down 5% to 48.64p followed by Standard Chartered with a 3.6% loss to 1387p. Barclays retreated 3.5% to 262.75p while RBS sank 2.8% to 32.39p.
The lack of risk appetite helped bolster the US dollar which weighed on commodity prices and miners. The biggest casualty in the mining sector so far has been Kazakhmys, which tumbled 4.55% to 2305p. Antofagasta dropped 4% to 797p, while Rio Tinto fell 3.7% to 2978.5p.
The US dollar has been gaining broadly on the back of its safe-haven status as well as on evidence of a strong pickup in US fundamentals lately.
Assuming this relationship does not change, being long US dollar at certain key levels may be rather profitable. In my view, the currency may have substantial upside potential.
Looking ahead, March Dow and S&P 500 futures traded around 0.80% lower this morning, suggesting the market is currently expecting Wall Street to open in negative terrain this afternoon. Of course sentiment will change, depending on how well this afternoon's payrolls fare.
The US nonfarm payrolls, unemployment rate and other labour market statistics are scheduled for release at 1.30pm (London time) today.
