FTSE starts the day lower on early profit taking as trader’s eye Econfin meeting and Osbourne’s autumn statement
City Index November 29, 2011 7:54 PM
<p>Early profit taking after the best one-day rally in the FTSE 100 Index for seven weeks saw the UK index trade lower by 0.3% in […]</p>
Early profit taking after the best one-day rally in the FTSE 100 Index for seven weeks saw the UK index trade lower by 0.3% in early trade on Tuesday.
Much of the market will be focusing towards a meeting of EU finance ministers in Brussels today, where they are expected to ratify the mechanics behind the EFSF, the bailout fund. All eyes will also be on another Italian bond auction this morning, where yields are expected to race higher yet again. Investors have shown a willingness to sit on their hands this morning.
Whilst the ratification of the mechanics behind the EFSF is a welcome step in the right direction, the bailout fund still required outside investment before it can be leveraged up to a size that investors deem as more credible than the wholly insufficient $440 billion level at which it currently stands. It is hoped that today’s expected ratification by finance ministers will help to bring about a greater degree of transparency, and this may help to convince outside investment into the fund itself.
Italy auctions off €8 billion worth of three-year and 10-year bonds today, where it is expected that the gross yield will likely escalate further. It is expected that the gross yield paid will supersede the unsustainable 7% level yet again and this will keep the pressure on both Rome and European leaders ahead of the EU Summit in over a week’s a time.
A report in the French newspaper La Tribune that the ratings agency Standard & Poors could change its outlook on France’s Triple A credit rating within the next 10 days to ‘negative’. The report indicated that the S&P had wanted to announce the outlook downgrade last week at the same time as cutting Belgium’s credit rating but refrained from doing so for unknown reasons. Whilst this is mere speculation, the press speculation is keeping sentiment pinned down from yesterday’s supercharged rally, and reminds that France remains at the cusp of Europe’s debt problems.
A warning from Fitch, another ratings agency, last night that the US is at risk of a credit rating downgrade if it doesn’t come up with a credible plan to cut its spiralling deficit by 2013 also kept sentiment in check but given the deadline given, the reaction to this statement was rather muted.
Osbourne’s Autumn Statement eyed
Investor eyes will also switch firmly to the House of Commons at 12.30pm today, where Chancellor George Osbourne will detail his plans to reignite the stuttering UK economy in his Autumn Statement, which the OECD predicted yesterday was likely to slip back into recession soon. It is expected that the Chancellor will announce plans to increase employment and small-medium business lending, but it is the expected revisions to UK growth from the Office for Budget Responsibility that will take a key focus for both UK stocks and the pound sterling. It is questionable how much any revisions will deviate from Mervyn King’s previous revisions to UK growth however. It is also expected that George Osbourne will admit that his target to cut borrowing costs before the next parliament is likely to fail.
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