The FTSE 100 gave up early gains after the highly anticipated auction of Italian bonds failed to live up to expectations. The UK’s blue chip index stood at 5,658 in early afternoon, down 4 points (0.1 percent) from Thursday’s closing level.
Italy managed to hit its target of €4.75 billion at today’s sale of three year bonds and saw yields slip from 5.62 percent at the previous auction to 4.83 percent.
However, analysts expected to a steeper decline in borrowing costs after yields on Spanish and Italian debt fell sharply at yesterday’s auctions, while also saw Spain raise €10 billion, twice the maximum target of €5 billion.
Lack of progress in negotiations of a debt pact between Greek policymakers and private bondholders also weighed on sentiment. The deal, if agreed, would cut the amount of Greek debt held by private investors by a half, or around €100 billion.
Royal Bank of Scotland (LON:RBS, up 5pct at 24.15p) topped the FTSE 100 today after Seymour Pierce upgraded the part-nationalised bank from “sell” to “buy”.
Peers Barclays (LON:BARC, up 3pct at 199.2p), Standard Chartered (LON:STAN, up 2.4pct at 1,481p) and Lloyds (LON:LLOY, up 2.1pct at 29.78pct) also showed up on the leaderboard this afternoon.
Unlike RBS, telecom major Vodafone (LON:VOD, down 2.3pct at 175.45p) failed to benefit from a rating upgrade. The stock was out of favour this morning, receiving little support from a decision by broker Nomura to change its recommendation from “neutral” to “buy”.
Other notable risers included asset management firm Ashmore group (LON:ASHM, up 4.7pct at 356.8p) and interdealer broker ICAP (LON:IAP, up 3.5pct at 334p).
In the meantime, yesterday’s heaviest faller Tesco (LON:TSCO, down 1pct at 320.1p) extended losses this morning after Credit Suisse downgraded the retailer from “outperform” to “neutral” following yesterday’s downbeat Christmas trading update.
US markets
Financial bookmakers are currently expecting a lower start on Wall Street. Futures for the Dow Jones Industrial Average (DJIA) fell 10 points (0.1 percent) and futures for the broader S&P 500 index dropped 5 points (0.4 percent).
Apart from declines in European debt markets, demand for US equities was hit by concerns that US president Barack Obama’s request to increase America’s borrowing limit by US$1.2 trillion could turn into another debt-ceiling crisis like that experienced in the US.
Back in August last year, prolonged negotiations between Democrats and Republicans ended with an 11th hour deal to raise the borrowing limit, leading to a decision by Standard & Poor’s to strip the US of its top notch AAA rating.
“If this act degenerates into the kind of brinkmanship we saw in August, then all the good feeling created by the recent run of positive US economic data could dissipate, sending shares lower once again,” said research analyst at IG Index Christopher Beauchamp.
In terms of data, traders in the US will have the University of Michigan’s consumer sentiment index to digest later this afternoon.
UK corporate news
Back in the UK, today’s corporate updates included a profit warning from Invensys (LON:ISYS, down 21pct at 179.6p) said that the majority of the group has performed in line with expectations.
However, its full year profits will be significantly below last year as a result of a “number of operational issues” at Invensys Operations Management and Invensys Rail.
These issues will impact the performance of the Invensys Operations Management by a total £40 million for the year and the Invensys Rail business by £20 million.
Fellow midcap constituent Balfour Beatty (LON:BBY, up 0.5pct at 279.8p) announced that its 50 percent owned joint venture Signalling Solutions Limited (SSL) has secured new signalling frameworks from Network Rail, one of Balfour’s key customers.
SSL has secured involvement in seven of the eight geographical regions covered by Network Rail's seven year "New Signalling Frameworks", worth a total £1.5 billion.
Elsewhere in the FTSE 250, defence group Chemring Group (LON:CHG, up 1.9pct at 435.5p) has secured further contracts worth €38 million to deliver 81mm pyrotechnic illumination mortar rounds from 2012 to 2014.
“I am delighted with today's announcement. It confirms Chemring's leading role within the pyrotechnics industry and the sustained requirement for these products despite current defence cuts,” said chief executive of Chemring David Price.
Finally, industrial controls group Spectris (LON:SXS, up 6.5pct at 1,498p) posted record sales and profits. Trading during 2011 was strong, resulting in a 23 percent jump in revenues compared to the previous year and an increase in operating profits from £142.1 million to £200 million.
Furthermore, the businesses acquired in 2011 performed well with Omega Engineering topping expectations.