29/12/11 - 23:00
UK Research Team, IG Group
After yesterday's excitement, markets have struggled to establish a direction this morning, making only slight gains and failing to push any higher. An Italian bond auction provided some temporary volatility, but overall markets remain hesitant in the low period between Christmas and the new year.
By 11.30am (London time), the FTSE 100 was up just 9 points at 5515.62, while its companion index, the UK-focused FTSE 250, was down 8 points at 10,004.37.
Italian bond auction dominates quiet trading
Another relatively successful bond auction by Italy helped markets to remain in positive territory this morning, although the atmosphere remains decidedly cautious following yesterday's sharp falls on the Dow and in London, where the FTSE 100 gave up all of its gains as US markets dropped.
Rome dipped its toe into the bond markets for the second time in as many days, auctioning off three and ten-year government bonds, with both issues seeing yields fall. However, the ten-year yield remains uncomfortably close to the dangerous 7% level, at 6.98%. The drop in yields was nothing like as a great as that seen yesterday, when interest levels on short-term paper halved. As the day proved later, even this was not sufficient to cause markets to rally, and investors are nervous that a similar situation may unfold today.
There seems to be little appetite at present for a year-end rally to match the pre-Christmas rally that we saw last week, with fund managers and traders looking to preserve their funds in easy to access cash format. Yesterday's revelations from the ECB that banks parked a record amount of cash with it during December did nothing to help matters, and this lack of confidence has permeated throughout all levels of the financial system. 2011 was the year of multiple summit disappointments for investors, as politicians met time and again, and each time failed to craft anything more concrete than a fine form of words.
Oil calm on US-Iran spat
The oil market has received some attention in the past two days, as the Iranian and US navies make various noises about the Straits of Hormuz. Yesterday, Iran said that it would respond to any oil sanctions with the closure of the vital waterway, but the US Fifth Fleet, based in Bahrain with responsibility for the straits, said that it would not tolerate any closure of the waterways. Oil futures have remained fairly sanguine despite the deepening war of words, after the initial excitement earlier in the month when Iran first mooted the closure of the straits as part of a military exercise. However, escalating tensions in the region could send prices higher if it looks as if the two antagonists are coming close to blows.
US pre-market
UK markets are almost entirely devoid of major corporate news today, so markets have essentially trod water all morning. At least this afternoon promises a degree of interest, with US economic data out in substantial quantities. As well as the usual clutch of weekly jobless claims figures (at 1.30pm), we have the Chicago PMI for December and then pending home sales for November (at 2.45pm and 3pm respectively). All timings are London time. As with yesterday, US markets are poised to open slightly higher, with the Dow up 19 points and the S&P 500 3.7 points higher, but with nervousness persisting all round, a repeat of yesterday's sell-off is not entirely beyond the bounds of possibility.
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