With Wall Street closed for Independence Day, there has been little to move equity markets this afternoon.
The FTSE was predominantly flat since this morning, hovering near its previous close, as losses across banks and miners were countered by gains in the retail sector.
By 3:45pm (London time) the FTSE 100 was 0.34 points lower (-0.01%) at 4837.75, while the FTSE 250 had gained 33.67 points (0.36%) to 9310.06.
The economic news emerging from the eurozone has been quite optimistic lately, and we could be in for further positive surprises when the eurozone bank stress tests are unveiled. The French Finance Minister Christine Lagarde said on Sunday that the tests will show that the French and European banks are solid. 'You will see that banks in Europe are solid and healthy,' said Ms Lagarde, 'I am not worried about my banks.' [1] UBS are also reported to have said that European banks would pass similar stress tests as that undergone by US banks in 2009. The stress tests are due to be released on 23 July.
The news did little to restore confidence in UK banks this afternoon, however, with Royal Bank of Scotland and Barclays the biggest fallers on the FTSE 100, shedding 2.42% and 2.52% respectively.
Miners were weaker today, despite a broad increase in metals prices overnight (except for gold). BHP, Xstrata and Rio Tinto fell between 1.31% and 1.86% this afternoon. The decline in miners is most likely the knock-on effect from last week's less-than-encouraging manufacturing data, which suggests a slowdown in manufacturing production among the world's biggest economies, the US and China.
Bucking the trend was BP, which rebounded 4% this afternoon. The embattled oil major has reportedly been seeking a 'white knight' to help protect the company against a potential take-over. A 'white knight' is a term used to describe a friendly investor sought by a firm either to block a hostile takeover attempt or to acquire the firm when it is struggling financially. BP has supposedly approached sovereign wealth funds in the Middle East, including Libya, for a possible cash injection.
After the shaky employment data released in the US on Friday, investors remain cautious of rushing back into riskier assets as they evaluate the future prospects for equities. On the one hand, if you look at the number of put options being purchased on exchange-traded funds (ETFs) it may indicate further declines ahead. 'The most actively traded options on the SPDR S&P 500 ETF are the July $100 puts, suggesting traders are hedging for potential losses,' said Ryan Detrick at Schaeffer's Investment Research. [2]
However, with the lead up to earnings season approaching, we should expect companies to start giving early earnings guidance, which could start from this week. According to Thomson Reuters' John Butters, historically the ratio for pre-announcements is usually two negative for every one positive announcement. At the moment there have been 1.2 negative for every one positive. [3]
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'Spread Betting News 5 Jul 2010', Article by IG Index, last update: 5-Jul-10
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