FTSE 100 flat after volatile week amid mixed US and UK economic data

The FTSE 100 made little headway this week, ending Friday at about the same level as Monday open as investors remained cautious following the Federal Reserve’s decision to hike the discount rate that it charges banks for emergency loans, sparking speculation that the economic stimulus measures that are currently in place could be withdrawn sooner than expected. Bernanke’s report to the US Congress was the highlight of the week with investors expecting an explanation of the move along with more clues about the strength of the economic recovery and the Fed’s near term monetary policy. While Bernanke reiterated the Fed’s stance that the interest rates will remain at near zero for an extended period of time, he offered a somewhat gloomy assessment of the economy, causing yet another selloff on Wall Street that also pushed down European stocks.
The stocks were further weakened by negative economic updates from Germany and the US. In Germany, the Ifo index from 95.8 to 95.2 in January instead of an expected increase to 96.4, reflecting a lower level of business confidence in the country, while American industry group Conference Board’s Consumer Confidence Index dropped from 56.5 to 46 in February.
Later in the week, markets on both sides of the pond suffered another blow after Thursday’s US jobless claims data turned out to be worse than expected, showing an increase in benefit claims of 22,000 to 496,000, while a decline was projected by most surveys.
Friday marked a recovery in Europe after the main US indexes trimmed losses late on Thursday following the morning’s sharp falls following the disappointing jobless claims data. The Footsie’s rally was supported by Friday’s reading of the Q4 UK GDP, which was revised upwards to an increase of 0.3% from 0.1%. The end of the week saw a flurry of economic data come out in the US, including GDP revision and updates on key manufacturing and sentiment indexes. The Q4 GDP was revised upwards to a 5.9% annualised increase, while the Institute of Supply Management’s (ISM) Chicago PMI (Purchasing Managers Index) neat expectations with a rise to 62.5 in February from January’s 61.5, reflecting higher industrial activity in the Midwest.
The ISM also updated the markets on its other key economic measurement, the New York Current Business Conditions index, which rose to 77 in February from 72.6 in January, reaching its three year highs.
However, the sentiment was dented by the University of Michigan consumer sentiment index, which fell to 73.6 from 74.4 in January, which was lower than the preliminary reading of 73.7.
On Friday, the Dow Jones Industrial Average ended the day with a marginal gain of just 4 points, marking a weekly loss of 77 points, while the broader S&P 500 index added 0.15% and the technology heavy NASDAQ composite improved 0.2%.
This week marked the start of the reporting season in the banking sector. Part-nationalised banks Lloyds (LSE: LLOY) and Royal Bank of Scotland (LSE: RBS) were the first to release their annual figures. Lloyds disappointed with a £6.3 billion loss following last year’s loss of £6.7 billion after writing down more bad debts, while RBS also posted a giant loss of £3.6 billion, which, however, was lower than the projected loss of over £5.5 billion, helping the bank to gains.
Lloyds simultaneously forecast a 1.8% UK GDP growth for both 2010 and 2011.
Sector peers HSBC (LSE: HSBA) and Standard Chartered (LSE: STAN) are due to report next week.
The UK’s blue chip index posted a monthly gain of 137 points, or 2.6% and is currently expected to gain 15 points, or roughly 0.3% in early trade on Monday. The Dow Jones Industrial Average is seen 12 points, or 0.1% higher.

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