Commodities Spread Betting: Eurozone Debt Fears Lift Gold Spreads
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 11 August 2011: 10.45am Update
European stock markets opened higher this morning as recent falls in prices tempted bargain hunters to re-enter the fray.
Fresh fears that Eurozone debt contagion is spreading, and angst over the Fed’s gloomy economic outlook after the US was stripped of its AAA rating, continued to haunt commodities spread betting investors this morning, with gold reaching a new high of $1814 per ounce.
The FTSE 100 was up by almost 2% at 5102.86, as was the broader FTSE 250, which was at 10,076.95 by 10.15am (London time). Across the channel, the French CAC index was also up by 2% at 3064.26 as yesterday’s emergency meeting of French ministers temporarily eased market anxiety.
French debt rating downgrade rumours linger
Rumours of a downgrade of French government debt, an expanded bailout for Greece (which would hurt French banks), and a government rescue of Societe Generale due to liquidity problems have all been heavily denied.
However, despite this, the rumours have reignited concerns that the Eurozone debt crisis is spreading quickly beyond the periphery to the very heart of the Eurozone project.
Talk of stripping France of its AAA sovereign rating came about on speculation of a new bailout plan for Greece that might be expanded to include bonds maturing in 2024, which would worsen the losses of French banks.
As rumours circulated yesterday, French president Nicolas Sarkozy summoned an emergency meeting with key ministers and the head of the French central bank for what his office described as a working meeting on the economic and financial situation.
This seems to have temporarily calmed markets, which saw banks, especially French banks, push higher. After finishing 15% lower last night, Societe Generale was up 7.42% this morning at €23.83.
Their Anglophone cousins also rallied this morning, with both Barclays and Lloyds up 3.5% and RBS gaining 2% to 24.81p. Buying also boosted HSBC and Standard Chartered, which rose 1.8% and 2.1% respectively.
With global markets on high alert and increasingly risk averse, even the smallest rumour will inevitably have a large effect on the market. Later today, markets will pay close attention to a monthly report published by the ECB in desperate hope of any positive news regarding the deteriorating Eurozone economy.
German data points to a further slowdown
Germany released wholesale price data for July, which helped to rationalise the opinion that equities were trading higher due to investors looking for a bargain. The figures showed that prices contracted by 0.6% during the month, and year-on-year growth slowed to 8.2%.
With German data continuing to point to the Eurozone’s most important economy slowing, the likelihood of an interest rate hike by the ECB any time soon begins to fade. Despite the poor figure, the German DAX was up almost 2.5% at 5748.43.
Gold breaches $1800 per ounce
Gold has rallied almost 25% this year as investor appetite for a safe haven grows on increasing fears of a global economic slowdown.
Speculation that France may lose its coveted AAA credit rating has sent gold futures soaring to a record high above $1800 per ounce. Gold's record-breaking rally gathered steam last week, first after the US reached a last-minute deal, which followed Standard & Poor's unprecedented decision to downgrade US debt.
Keynes may have called it a ‘barbarous relic’, but it would seem that investors still cling to the old faith in times of extreme uncertainty.
US pre-market
US futures jumped sharply this morning suggesting that Wall Street will open in positive territory. Futures for the Dow were up by 1.5% at 10,886.00, while futures for the S&P 500 surged 1.84% to 1143.20.
This afternoon, the US will see the release of weekly jobs data, which is expected to show an increase in jobless claims, and trade balance figures, which are forecast to show a narrowing of the US trade gap. The data is due at 1.30pm (London time).
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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Spread Betting 11 August 2011: 6.30am Update
In the US overnight, stocks gave up all of the previous session’s gains after aggressive selling quickly returned to markets, as participants worried over the European debt situation.
France was firmly in the crosshairs, with the forex spread betting market speculating that it may be the next nation to lose its triple-A rating, despite all three of the ratings agencies saying it was safe. The Dow Jones Industrial Average was the worst performer - down 4.6% - while the broad-based S&P 500 and NASDAQ lost 4.4% and 4.1% respectively.
Asia & Australia
Across Asia, regional markets are mixed following the wild ride in overnight equity markets that saw the US and European indices close sharply lower. After larger falls on the open, the major indices have rallied to trade well off their lows.
The Shanghai Composite and Kospi are the best performers - up 0.4% and 0.3% respectively - while the Hang Seng and Nikkei 225 are both down 1.2%.
In Australia, the ASX 200 is currently 0.1% weaker having traded in a massive 109-point range. Once again, volatility is off the charts with heavy early losses giving way to most of the market turning convincingly positive, before again rolling over.
As things currently stand, most of the main sector indices are in the red with the energy, materials, industrial and financial sectors all lower by between 0.5% and 1%. A strong result from Telstra is seeing the telecoms sector as the standout performer of the session, with a gain of more than 4.5%.
Europe
Equity markets took another nosedive yesterday on the back of suggestions that France was on the verge of being dragged into the Eurozone debt crisis. This only compounded the ongoing question over the health of the global economy as a whole.
This is certainly making for a rollercoaster week for stocks, although something of a reversion is expected at the start of trade in Europe.
Even with the uncertainty, stocks are arguably looking quite cheap at their current levels, especially with companies building cash piles and adding scope for some M&A activity once we're out of the August lull.
The lack of demand for risk, however, is certainly being played out on the price of gold right now. The asset broke above $1800/oz temporarily yesterday, and though this was short-lived - with questions again raised over the state of the euro spread betting market - more buying support could still be seen here in the near term.
Fundamentals are looking a bit thin on the ground in the hours ahead, and with traders gripped by fear this isn't really going to help. We can expect the ECB's monthly report and weekly jobless readings from the US to be the main points of interest. Earnings are looking a bit subdued today too, with Anheuser-Busch InBev the highest profile report.
Ahead of the open we're calling the FTSE up 70 at 5077 the DAX up 104 at 5717 and the CAC up 46 at 3049.
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.
Advert:
IG Index Spread Betting - No Fees, No Commissions, Free Charts and Live Prices.
Spread Bet on Indices, Forex, Commodities, Shares and more. For details see IG Index.
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"Commodities Spread Betting: Eurozone Debt Fears Lift Gold Spreads" last update by AG, 11-Aug-2011
Warning: Financial spread betting carries a high level of risk. You can lose more than your initial investment or stake. Financial spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.
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