Carnival Shares Spread Betting Market Opens Lower on Cruise Ship Tragedy
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 16 January 2011: 10.15am Update
And after the storm comes... not much.
Those hoping for some spectacular moves on stock market indices this morning have been sorely disappointed, as the FTSE 100 and its peers in Europe spend the first morning of the new week milling around in a narrow range. This current state of ennui belies the headwinds facing us at present.
By 10.15am (London time), the FTSE 100 was down 0.4% at 5613.42, while the FTSE 250 lost 0.5% to 10,405.71.
Sentiment turning sour in Europe
First on the list is, of course, the Eurozone. Friday’s downgrades had been widely expected by the spread betting markets, so the shock itself was short-lived. However, it points to greater problems.
The fact that Germany is now the sole large Eurozone economy with a AAA rating suggests, in my opinion, that the problem will only get worse.
Berlin will see this as confirmation that its fiscal rectitude and careful economic policies are the correct model, reinforcing its view that the best way out of the crisis is Teutonic-style policies of cutting spending and raising taxes.
This German insistence is driving the Eurozone apart, as the southern nations fall ever further behind. The corollary of this is that the French position, that the ECB should step in and rescue nations with something similar to the Fed’s QE programme, is now weaker, making it harder to press the case for such action.
Although this morning’s reaction has been muted, there is an increasing feeling that the Eurozone crisis is now slipping out of control.
There remains no real effort to create the kind of central fiscal authority that could break the Gordian knot and force countries to work together, while popular discontent with the crisis grows by the day in all nations.
Standard & Poor’s may have started something with Friday’s downgrade, but it will take time to appreciate the full impact.
UK seen in recession already
Back in the UK, the situation is not much better. Economic forecaster, the Ernst & Young Item Club (E&Y) has said that the UK economy may already be in a recession.
E&Y warned that GDP contracted in the final three months of 2011 and was likely to have shrunk anew in the opening quarter of 2012.
Even if the Eurozone solved its problems, E&Y noted, it was unlikely that growth of more than 0.2% would be seen in Britain this year.
Some politicians will use this news as proof that the current government’s policy is not working. However, we have seen the consequences of losing the confidence of bond markets and, with the UK’s AAA rating still intact for now, we can breathe a sigh of relief.
Carnival falls back
Shares in cruise line operator Carnival have duly opened lower this morning, as the world continues to receive new pictures of the disaster off the coast of Italy.
The shares dropped 18% to 1850p, their lowest point for several months, as investors exited the stock on worries about safety across the rest of the Carnival fleet.
The company said that the tragedy will cost them $95 million, but other analysts think that 10% could be wiped off earnings, a drop of around $200 million.
US markets on holiday
US markets are closed for the Martin Luther King holiday, so no US economic data is out.
The focus remains on Europe for now, but it will be interesting to see how the US markets react tomorrow when they play ‘catch-up’ with their Asian and European counterparts.
Remember that financial spread betting is a leveraged product and can result in losses that exceed your initial deposit. Spread betting may not be suitable for everyone, so please ensure that you fully understand the risks involved.
The above comments do not constitute investment advice and neither IG Index nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
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"Carnival Shares Spread Betting Market Opens Lower on Cruise Ship Tragedy" last update by AG, 16-Jan-2012
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