Commodities Spread Betting: Oil Prices Rise as Libyan War Nears End
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 22 August 2011: 10.45am Update
UK markets rose this morning, helping to recover some of last week’s losses, with talk of fresh central bank stimulus driving the moves.
However, fear has not entirely abated, as gold resumed its march towards $2000 per ounce on worries over the medium-term outlook for the global economy.
Elsewhere in commodities spread betting news, oil prices eased on hopes that the Libyan civil war may be drawing to a close, which would see an increase in oil supplies from that nation.
By 10.20am (London time), the FTSE 100 had gained 1.66% to 5124.53, while the FTSE 250 rose 1.42% to 9897.33. European markets also rose, with France, Italy and Spain all firmly higher.
Hopes of Fed action drive rally
Those investors wondering why the market has rallied this morning need only look at their diaries.
This Friday, Federal Reserve chairman Ben Bernanke will give a speech at the annual economic conference in Jackson Hole, Wyoming. Back in the heady days of August 2010, Mr Bernanke used this speech to intimate that he was considering a third bout of quantitative easing (QE).
So, this week should be viewed as ‘QE3 week’. However, those expecting ‘Helicopter Ben’ to airdrop another wodge of cash on global markets may well be sorely disappointed, since the world has moved on somewhat since he last stepped in to stabilise the situation.
As the last set of Fed minutes showed, opposition to further central bank stimulus is increasing among some members, whereas last year all policymakers supported the plan.
In addition, scepticism about the real effectiveness of further quantitative easing (and even doubts about the real impact of the first two rounds of stimulus) is increasing. Given that the Fed has spent almost $3 trillion so far and yet has not managed to prompt a full-blown recovery, it is difficult to see how Mr Bernanke could act in a meaningful manner.
Furthermore, QE2 was launched last year at a time when deflation seemed to be a real threat. Now however inflation is more of a worry, and with an election looming next year in the US, Washington will be nervous about any policy that prompts an increase in the cost of living.
Of course, nothing is ever certain, and I would be wary of saying now that QE3 is an impossibility. However, the obstacles to its implementation look far higher this time around.
Einstein once said that the definition of insanity is doing the same thing over and over again, but expecting different results. QE1 and QE2 staved off a crisis for around three years, but this time round a new approach may be needed.
Gold surges, oil wilts
Equities may be higher this morning, but investor sentiment is still fragile. Gold, everyone's favourite ‘barbarous relic’ is pressing ever-closer towards the $2000 per ounce mark. If Mr Bernanke does indeed hit the QE3 button, then the attraction of physical assets such as gold will be burnished yet further.
The global economy still looks weak, with no Eurozone solution yet in sight and the US economy continuing to struggle. $2000 per ounce will be an important psychological point, but the momentum of gold’s advance may well have further to run.
Gold might be up this morning, but the price of oil has eased somewhat as the situation in Libya points to a resolution of that country’s troubles. Rebel forces now appear to be in control of most of the capital, raising hopes that the civil war that has plagued the country for six months will be over.
An end to the fighting could well mean an increase in supplies of oil from the country as the new government looks to boost revenues by raising output, helping to ease a tight supply situation that has pushed prices higher of late. October futures for Brent crude fell 2% to $106 per barrel.
US pre-market
US futures suggest a strong opening for Wall Street, with September Dow futures up 0.73%, while those for the S&P 500 are 0.95% higher. It is a fairly quiet day for economic data, with only the Chicago Fed activity index for July out at 1.30pm (London time). This is forecast to edge back to -0.48 from -0.46 a month earlier.
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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"Commodities Spread Betting: Oil Prices Rise as Libyan War Nears End" last update by AG, 22-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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