FTSE struggles in afternoon session traders bank profits

The FTSE 100 fell over 0.5% for the first time in three trading days after traders decided to bank profits having seen the UK Index recover 3.5% since last Thursday. A move higher by crude oil prices on escalating violence and air strikes in Libya has also played a role in reduced share demand this afternoon, indicating that traders remain highly sensitive to any push higher in crude oil prices.

Mining firms and banking companies were the key drags on the FTSE100 today. This is to be expected considering both sectors have led the FTSE’s charge higher over the last few sessions. The mining sector has rallied just under 8% in the last week and so today’s 1% sector losses can be mostly viewed as profit taking for now, particularly considering metal prices have rallied today too.

This same conclusion can be read into today’s weakness in the banking sector also, which has rallied nearly 4% from last Tuesday. A positive note from JP Morgan on banks such as Barclays, which it highlighted as one of its preferred plays, stating that limited exposures in both capital and risk to Japan mean that the recent heavy share price falls represent a buying opportunity, has also failed to liven up the sector today.

It is too early to tell whether today’s profit taking will turn into a continuation of the recent bearish moves seen in European indices. Much will depend on whether investors use today’s weakness as an opportunity to pick up stocks at prices they perceive to be cheap in the coming sessions. After index rallies of some 3.5% in the last four days, it is feasible that equities could be consolidating before making a further push higher.

On the downside today we have seen traders sell out of shares in GKNafter the French press reported that the firm was amongst three firms to submit bids for aerospace engineering company Latecoere. GKNshares fell 3.4%.

Sterling charges to new 13-month high on inflation data
The pound sterling rallied to a new 13-month high today after data showed that UK inflation continued to charge higher, reaching 4.4% – more than the market had expected and still more than double the Bank of England’s 2% inflation target.

Today’s data piles yet more pressure on the Bank of England to hike interest rates, placing them in an incredibly tough position on the eve of tomorrow’s Budget. There is every chance that higher commodity prices, triggered by events in the Middle East and Libya, could push inflation even higher to the 5% mark and at that point, the Bank of England could be facing a crisis in confidence by the market.

The inflationary data has helped to charge the pound sterling higher to a new 13-month high just above the $1.64 mark as investors bet that UK rate hikes are likely to come sooner rather than later.