The FTSE 100 fluctuated near its highest level since May 2008, as continuing unrest in the Middle East combined with wariness among investors ahead of the release of a barrage of US economic data this afternoon.
Middle East protests
The situation in the Middle East continues to provide pause for thought, as the shockwaves created by the downfall of rulers in Tunisia and Egypt are felt around the region. The latest country to see unrest is Bahrain, where security forces have dispersed protestors that had gathered in the centre of the capital, Manama. Three people were reported to have died, with many others injured. Protesters are calling for major political reforms, having been inspired by the success of movements in Tunisia and Egypt. Any turmoil in the region is unsettling for global markets and also for oil prices, since the region is a vital source of Western energy supplies. This was further demonstrated yesterday, when the price of crude oil jumped higher on reports that two Iranian warships would transit the Suez Canal. The prospect of Iranian and Israeli forces in close proximity set alarm bells ringing among investors, but the reports were later denied by Suez Canal authorities.
Eurozone construction output
The effects of bad weather in Europe continue to be felt, with data out from Eurostat today showing that construction output in the eurozone contracted by 1.8% in December. This was double the prior month's figure, but heavy snow in Germany will have been the main contributor to the disappointing data.
UK equities - miners & banks, BAE, Redrow
By 10.30am (London time), the FTSE 100 had edged back 6.36 points (0.1%) to 6078.91, while the FTSE 250 managed to remain in positive territory, up 3.09 points (0.03%) at 11,810.37.
Mining stocks were generally lower after talk that copper prices had risen too far and too fast, and BHP Billiton fell 2% to 2418p while Rio Tinto dropped 1.4% to 4455p. However, banking stocks provided much needed support, with RBS gaining 3.5% and Lloyds up 2%, the earnings season for the big UK banks having gotten off to a good start. Sentiment towards the sector was also helped by a report in the Financial Times, which suggested that the Treasury was examining ways of easing liquidity rules that would save banks hundreds of millions of pounds and allow increased lending to businesses and homeowners.
BAE Systems fell 4% to 342.2p after commenting that it expected sales to dip in 2011 due to the impact of government spending cuts. Sales rose 1.8% in 2010 to £22.392 billion, which was below market expectations of £22.548 billion, and the firm moved back into the black with pre-tax profit of £1.027 billion, from a £61 million loss a year earlier. 2011 performance is expected to be weighted towards the second half of the year.
Housebuilder Redrow was able to report an improved picture for its first half trading, with a pre-tax profit of £8.5 million for the six months to 31 December 2010, having made a loss of £8.7 million a year earlier. The average selling price per home rose from £147,300 to £170,500, and the number of homes sold also increased, reaching 1312. The firm's second half has started well, it added, with reservations in the first six weeks comfortably ahead of the same period last year. Although Redrow dropped back 0.3% to 132.59p, the news helped lift other housebuilders, with Berkeley, Barratt and Taylor Wimpey all up 2%.
Looking ahead, it is a busy day for US economic data. 1.30pm GMT sees the release of CPI data for January, with core inflation forecast to have risen 0.1% month-on-month. The weekly jobless claims figures are due at the same time, and initial claims for last week are expected to rise by 17,000 to 400,000. The January leading indicators data is expected to show an improvement to 0.3% when it emerges at 3pm (London time), while the simultaneous publication of the Philadelphia Fed's manufacturing index is predicted to report that manufacturing in that region has improved, with the index moving up to 21.
Ahead of the open, March futures are mixed, with the Dow up 0.07% but the S&P 500 down 0.05%, indicating that the FTSE's lethargic start will be mirrored on Wall Street. However, this could change if the mass of economic data provides any surprises.