Commodities Spread Betting Markets Lower on Doubts Over EU Crisis Plan
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 25 October 2011: 11.00am Update
Caution crept back into the commodities spread betting markets this morning as investors become increasingly doubtful of whether Eurozone leaders will be able to propose concrete plans to tackle the Eurozone’s fiscal and banking problems during tomorrow’s second EU summit.
By 10.30am (London time), the FTSE 100 was up 0.25% at 5561.71, while the FTSE 250 ended yesterday’s rally, but remained marginally higher at 10,483.21
Eurozone doubts return
A European Union document released today revealed that further talks will be required with investors to discuss boosting the effectiveness of the European Financial Stability Facility (EFSF) bailout fund.
Despite European policymakers moving closer to a deal on bank recapitalisation plans and reaching a broad agreement on Greek bond haircuts, they still remain at a disagreement over how to beef up the EFSF.
The document revealed that leveraging of the EFSF fund can be bolstered under two models, however the extent to which the fund is leveraged can only be established after discussions with investors and rating companies.
German budget lawmakers are due to convene in Berlin today to examine the two leveraging models. The first would raise the EFSF’s capacity by insuring a fraction of the countries’ funding requirements, and the second will combine capital from European and non-European public and private investors.
The report comes ahead of the second EU summit, which investors expect will produce a concrete proposal to solve the Eurozone crisis.
Deutsche Bank reports earnings
This morning Deutsche Bank announced that its third-quarter pre-tax profit beat analyst’s expectations, as retail banking and asset management helped offset investment banking profits.
Third-quarter pre-tax profit came to €942 million compared to a forecast of €572 million and a loss of €1.05 billion a year earlier, which was partially due to the consolidation of its acquisition of Postbank. Net income was reported at €777 million for the third quarter.
Despite the better-than-expected earnings report, the German lender dropped its ambitious full-year targets earlier this month and announced 500 job cuts, while warning that heightened market volatility had significantly affected its corporate and investment banking unit during the quarter. T
he bank has already wrote down its holdings of Greek debt by €228m. Shares in Deutsche Bank were up almost 1% to €28.70 this morning.
UBS profits
UBS reported better-than-expected third-quarter net profits of more than SFr1 billion, in spite of an unauthorised trading loss that cost the group SFr1.85 billion, which was offset by a big accounting gain. Net profit fell 38% to SFr1.02 billion, beating a forecast of SFr276 million.
The bank further announced that it was working on plans to restructure the investment bank section ahead of an investor day on 17 November, and would give details on possible new cuts then after, announcing 3500 job losses early last month. This morning UBS shares were up 1.8% at 11.34 francs.
BP and BG shares jump
Another set of earnings this morning came from oil-giant BP, which announced that its profit declined less than expected in the third quarter. Third-quarter earnings were down to $5.3 billion compared to $5.5 billion a year earlier and compared to a forecast of $5 billion. Net income rose to $4.9 billion from $1.8 billion in the third quarter of 2010.
In addition, the company announced plans to increase its cash flow by 50% by 2014 by focusing on the most profitable production projects. It plans to increase asset sales by disposing of half of its US refining capacity in the Carson and Texas City plants.
Last week, BP won regulatory approval for its first drilling plans in the Gulf, home of its most profitable fields since the spill. BP shares rose as much as 4.2% to 461.76p.
In a separate report, BG Group, the UK’s third-largest oil company, said today that its earnings rose in the third quarter as energy prices increased. Net income climbed to $1.06 billion in the period from $849 million a year earlier. BG shares were up as much as 5% to 1392.5p this morning.
US pre-market
Dow December futures were marginally lower this morning (-0.03%) at 11,822.00, while those for the S&P 500 were 0.21% higher at 1249.70.
On the economic data front, at 3pm (London time) the US will release the Richmond Fed manufacturing index, October’s housing price index, and the consumer confidence index, which is expect to rise to 46.2 from 45.4 in September.
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 25 October 2011: 6.00am Update
Global markets extended their gains overnight on a swathe of positive news.
Talk of a bigger bailout fund in Europe, an improvement in China manufacturing data, some M&A talk in the US and strong results from Caterpillar combined to boost sentiment.
Japan also saw its exports rise more than expected last month and commodities rose on signs of Asian growth.
Europe seems to have developed a sense of urgency with more details of the bailout plan emerging. Financial spread betting investors are increasingly beginning to believe that European leaders will succeed in preventing a spread of the region’s debt crisis.
Overnight, the Federal Reserve Bank of New York president William Dudley said the central bank wants to keep mortgage interest rates from rising too much and may do more to hold down borrowing costs. This could be an indication that further quantitative easing is on the way.
Among the major averages the Dow Jones Industrial Average climbed 0.9% to end at 11914, the S&P added 1.3% to 1254, while the Nasdaq jumped 2.4% to 2699. The Nasdaq was propelled by reports of a potential move for Yahoo by Google.
Asia & Australia
Across Asia, regional markets are mixed as indices spread betting investors exercise some caution ahead of a crucial statement on Europe’s plans to stem its debt crisis.
Today’s subdued trading is in sharp contrast to the strong buying momentum seen in yesterday’s session, where we witnessed a mixed reaction to China’s flash manufacturing PMI reading of 51.1 (up from 49.9). This indicates that the country is back in expansionary territory.
The news is a double-edged sword, as while it shows expansionary activity, it also gives rise to fears that some monetary tightening may be implemented. China is determined to control food and housing prices to ease soaring inflation and maintain economic development.
The Hang Seng is outperforming the region, up 0.5%. The Shanghai is relatively flat (-0.1%) and the Nikkei is 0.3% lower.
In Australia, the ASX 200 is 0.9% weaker at 4216. The index has given up its early gains on profit taking and caution ahead of the European solution. It has been a quiet session after the index surged 2.7% on Monday, leading strong gains in global equity markets.
Resources are holding up well after commodity prices surged, with BHP Billiton and Rio Tinto staying positive after LME copper rose 6.9%. Apart from material names, all sectors are weaker, with healthcare stocks the worst hit. Resmed is down 12% after missing 1Q earnings expectations.
After a strong session yesterday, it seems Australia was bound to pull back with a bit of caution being exercised ahead of Wednesday's European summit. There is optimism on Europe, but this will be the region’s 14th crisis meeting in 21 months.
Either way, both the bulls and bears seem non-committal at this stage and are happy to wait and react to an outcome. Australia also has key 3Q CPI data due out tomorrow.
Europe
With the Dow clocking up triple digit gains on the first trading session of the week, equity markets remain in a somewhat optimistic mindset over the imminent announcements from European leaders.
Certainly resource stocks are very much in favour with the concept that the Eurozone won't be able to derail global economic growth, giving raw material prices a proverbial shot in the arm, although current expectations are for a slightly softer start in Europe.
Again with the major indices having added in excess of 1% yesterday, there's certainly scope for a degree of consolidation, especially with the bearish sentiments of many prevailing, suggesting that we're once again left with many equities looking a bit toppy.
There's a handful of economic readings due in the coming hours that might offer some distraction ahead of tomorrow's key news from Europe, including UK current account deficit data, plus German and US consumer confidence readings, whilst the earnings calendar is busy too.
Highlights include BP, BG Group and Reckitt Benckiser in London, Deutsche Bank in Frankfurt, plus the likes of UPS, Delta and Xerox in another busy day of Q3 numbers from the US.
Ahead of the open we're calling the FTSE down 19 at 5529, the DAX down 15 at 6040 and the CAC down 12 at 3208.
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 Markets Lower on Doubts Over EU Crisis Plan" last update by AG, 25-Oct-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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