Traders cautious as oil price may herald recession

With fighting in the Middle East and North Africa intensifying, I expect a fairly flat open to stock markets in Europe this morning.

GFT is quoting the FTSE 100 index to open unchanged from Friday’s close below 6,000, at a level of 5,990. Elsewhere the German DAX is called down 5 points at 7,173, and the French CAC is quoted down 2 points to open at 4,018.

Despite Friday’s positive news from the US of a stronger-than-expected non-farm payrolls report and improved unemployment rate, traders seem reluctant to commit to equities as the prospect of $150 per barrel of oil, and an ensuing double-dip recession should that be sustained, moves ever closer. Speculation that the US and UK could opt for military intervention in Libya is also adding to the nervous mix.

The main scheduled event for the UK this week is surely the Bank of England Monetary Policy Committee decision on interest rates, due to be announced on Thursday. A growing number of analysts were vouching we would see a rate rise, but comments from MPC member and deputy BoE governor Charlie Bean poured cold water on the idea of using higher interest rates to control inflation in the current economic environment.

This week also sees the results announced of the latest FTSE reshuffle, where we see updates to index composition based on the closing price of shares tomorrow. The quarterly event can spark some volatility especially for those companies whose shares are in contention for promotion or relegation to and from the FTSE 100.

Pension funds and investment trusts with index tracker funds will be reweighting their portfolios accordingly, and on this occasion we can expected heightened trading volumes in the shares of ITV, John Wood Group and Hargreaves Lansdown, all in with a chance of joining the blue chip index, and to the short side on Alliance Trust, African Barrick Gold and Bunzl.

Martin Slaney is director of global dealing operations for GFT.