Commodities Spread Betting: Markets Tumble as Eurozone Debt Crisis Escalates
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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 November 2011: 11.00am Update
European shares pared gains and turned negative this morning, as commodities spread betting investor concerns over the Eurozone debt crisis escalated after the European Central Bank stepped in and started buying sovereign bonds to reduce yields.
At 11am (London time) the FTSE 100 was 0.81% lower at 5472.68, while the FTSE 250 was down 0.1% at 10,249.85.
ECB buys time for the Eurozone
Contagion from debt-ridden Greece into Italy, Spain and now France has become the dominant fear for global investors, as seen by the sharp rise in bond yields across the board.
With market sentiment deteriorating, spread betting investors are beginning to question the ability of debt-ridden Eurozone countries, such as Italy, to do what it takes to reverse their economic decline.
There is also concern about the long-term willingness of the ECB to act forcefully enough to end the crisis, after reports this morning that the ECB has purchased Spanish and Italian debt to bring yields away from unsustainable levels.
The Italian ten-year government bond yield was down over 2% to 6.9% after closing at 7.12% last night, while the Spanish ten-year bond yield was down almost 1% to 6.29%.
While the ECB continues to stall the spread of the Eurozone crisis, Italy and Greece are scrambling to do what they can to pass further austerity measures and secure a bailout.
In Greece, the new government is expected to survive a vote of confidence due later today at 1pm (London time) and will then face the task of repairing shattered public finances.
In Italy, former EU commissioner Mario Monti is expected to unveil Italy's new government later today, after an intense two days of consultations aimed at staving off a major financial crisis that has pushed Italy's borrowing costs to untenable levels.
Mr Monti was expected to meet President Giorgio Napolitano at 10am (London time) to tell him formally that a government could be formed.
Storm clouds gather over Britain
Economic data released this morning revealed that the jobless total in Britain rose to its highest rate in 15 years, and that the number of young people without a job soared to a record high.
Unemployment grew by 129,000 in the three months to September, to 2.622 million, pushing the overall rate up to 8.3% compared with forecasts of 8.2%.
However, the number of people claiming jobless benefit rose by 5300 last month, far below analysts' forecasts for a rise of 20,000.
Meanwhile average weekly earnings growth (including bonuses) weakened to 2.3%, while weekly earnings (excluding bonuses) grew by 1.7%. With wage growth still well below inflation, (October's rate is 5%), there is an added pressure on cash-strapped consumers.
In a separate report this morning the Bank of England's inflation report reiterated that Britain is on the brink of a contraction, as the Eurozone debt crisis weighs heavily on the nation. The report also said that inflation will fall well below target, leaving the door wide open for more stimulus measures to boost growth.
The BoE indicated it may have to add to its £275 billion asset purchase programme and that inflation would fall to 1.3% in two years' time.
The central bank also sharply revised down its short-term growth forecasts to below 1% throughout 2012. Perhaps the one glimmer of light was the BoE's forecast that economic growth would pick up and reach 3.1% at the end of 2013.
US pre-market
US December futures are pointing to a positive open on Wall Street this afternoon with Dow futures 0.14% higher at 12,096.16 and S&P 500 futures contracts 0.48% higher at 1257.81.
Looking ahead to this afternoon, US economic data due for release will include inflationary figures at 1.30pm and industrial production and capacity utilisation data at 2.15pm (both 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 16 November 2011: 6.00am Update
Global markets were mixed overnight, with Europe weaker but the US stronger.
Softness in the European session came on the back of rising borrowing costs for Spanish debt and reports that new Italian Prime Minister Mario Monti met resistance in forming a cabinet. However, there was a turnaround in the US session on improved optimism around Mr Monti’s ability to battle the debt crisis, plus some impressive US economic data.
Among the major averages, the Dow Jones Industrial Average climbed 0.1% to end at 12096. The S&P advanced 0.5% to close at 1258, and the Nasdaq surged 1.1% to close at 2686. Retail sales in the US rose 0.5%, smashing expectations of a 0.3% gain.
There is certainly a huge improvement in the US economy with most of the recent data painting an optimistic picture. This is also backed by a solid reporting season which saw US corporate earnings impress.
Asia & Australia
Across Asia, regional markets are mostly weaker on concerns about European sovereign yields. Despite some positive US leads, indices spread betting markets have turned negative on persistent Eurozone debt issues. The Hang Seng has dropped 1.6%, the Shanghai Composite is 1.2% lower and the Nikkei is down 0.1%.
Australia's S&P/ASX 200 index is down 0.5% at 4266. The index fell to 4265.2 amid a lack of follow-through buying after rising to 4307.5 following a 0.5% rise in the S&P 500.
Volume has been very light, giving the early gains very little impetus. We were expecting moderate gains on the open following strong economic data in the US overnight. A lack of conviction by the bulls, however, has once again seen the local market give up early gains.
Investors are remaining cautious amid spiking European debt yields. The focus is turning to Spain and France after their yields spiked overnight.
Iron ore miners are outperforming, with BHP Billiton flat and Rio Tinto up 0.7%. The banks are underperforming, with Commonwealth Bank down 1% after Citi downgraded it to sell. Some of the worst performing sectors are energy, infotech and utilities.
Europe
The spread trading market is concerned about Greece again, because the Greek conservatives seem hell-bent on causing further panic by saying that they would not bow to ‘dictates from Brussels’ over a bailout designed to save their country from bankruptcy and safeguard the euro.
The Financial Times also reported that the private sector involvement for Greece is not going to plan, as it is requesting higher rates and potentially kickers if the Greek economy recovers.
Greece has faded into the background a little, given the contagion and recession fears in Europe, but until they get the sixth tranche of aid, traders will remain on edge. The path of least resistance seems down at present, and while Europe seems to be heading for a recession in its periphery and perhaps the core, the US looks set to grow north of 3% in Q4.
On the economic front in the UK, traders will be looking out for an inflation report and a speech from BOE Governor Mervyn King. Other important events include the Claimant Count Change and the unemployment rate.
Turning to Europe, traders will continue to focus on the bond market after the rise in bond yields affected all the main Eurozone countries apart from Germany yesterday. This effectively puts global markets on high alert.
Ahead of the open we're calling the FTSE down 32 at 5485, the DAX down 51 at 5822 and the CAC down 19 at 3030.
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 Tumble as Eurozone Debt Crisis Escalates" last update by AG, 16-Nov-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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