Dow Jones Spread Betting Market as EU Leaders Draft Bailout Framework
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 29 November 2011: 11.00am Update
Markets started the day quietly, as traders paused for breath in the wake of yesterday's strong rebound. In the UK, investors look to the budget statement at 12.30pm (London time), while a reasonably successful Italian bond auction lifted sentiment in Europe.
By 10.40am (London time), the FTSE 100 was up 0.58% at 5343.41, while the FTSE 250 had surged 1.5% to 10,054.96. European markets also rose, the Dax leading the way with a 1.22% gain.
Quiet start for markets
Compared to yesterday's excitement, things are relatively quiet today on the spread betting markets. Investors and traders are busy assessing the impact of the powerful rally which took place across all markets, as they attempt to determine whether this is the start of a new uptrend or merely a brief spasm of optimism before the selling restarts.
Autumn budget statement
Investors in the UK are looking to the autumn budget statement by Chancellor George Osborne. Given that the chancellor is expected to announce significant cuts to growth, it is worth noting that Mr Osborne was actually keen to scrap these autumn statements, introduced by then-Chancellor Gordon Brown.
While he will attempt to put the best spin possible on the poor outlook, it will be almost impossible to hide the fact that growth in the UK is ebbing fast, with borrowing higher than planned. Previous forecasts for borrowing of around £37 billion for 2014-15 have been superseded by expectations of a whopping £81 billion. T
he various schemes designed to improve growth have been widely trailed, but this seems more like tinkering around the edges, with little overall impact on growth. If the government wants to make real progress on restoring the health of the UK economy, then it must try something more radical, such as tax cuts and increases in tax thresholds.
However, this is likely to be deemed politically impossible, so the 'muddling through' strategy stays.
Eurozone bond auctions in focus
Meanwhile, Europe, Italy and Belgium will continue to test the waters of Eurozone bond markets with several auctions. An auction of three-year and ten-year Italian bonds saw strong demand, but the ever-upward progression of yields continued. The three-year yield reached 7.89% (from a previous level of just 4.93%), while the ten-year hit 7.56%.
Some might wonder why Italy hasn't reached its Waterloo just yet, with its benchmark yields comfortably inside bailout territory, but I would point out that Portugal spent a miserable 49 days with its ten-year yielding over 7%, so we have some way to go yet.
However, the good level of demand seen for the Italian bonds this morning has provided a reason for markets to rally further.
Yesterday's strong rally was driven by hopes of real progress on the Eurozone debt crisis. Eurozone finance ministers will meet this afternoon in Brussels, so markets will be looking to any announcement on new measures to improve fiscal governance in order to continue their rally into a second day.
Lack of news could torpedo this rally however, if investors think that, as so many times before, the actual work does not match the fine words.
US pre-market
At present the Dow is expected to start around 112 points higher, with the S&P 500 kicking off around 13.4 points up, continuing yesterday's excellent gains for US markets.
At 2pm, the September Case-Shiller house price index is published, with November consumer confidence at 3pm (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 29 November 2011: 5.00am Update
Global markets rallied overnight as European leaders drafted a framework for a bailout fund for the region.
Strength shown in the Asian session resonated in the US and Europe, as investors got a chance to react to the positive developments from the weekend. Investors are increasingly optimistic that European leaders will draft a comprehensive bailout plan which involves better fiscal integration, plus insure bonds of debt-stricken countries with guarantees of 20% to 30%.
Among the major averages, the Dow Jones Industrial Average advanced 2.6% to end at 11,523. The S&P climbed 2.9% to 1193 and the Nasdaq soared 3.5% to close at 2527. European markets enjoyed even bigger gains after having sold off for the best part of two weeks.
Asia & Austraila
Across Asia, regional markets are mostly higher, extending gains after yesterday’s rallies. Some of the euphoria has worn off, however, as spread betting investors seek confirmation of some of the reports from Europe before committing to longs.
A report suggesting Standard & Poor's may give France a negative outlook within ten days has dampened the reaction to offshore gains.
Around the region, Japan is leading the gains with a weaker yen lifting the exporters. The Nikkei and the Hang Seng are up around 1% each, while the Shanghai Composite is 0.7% higher.
The Aussie market is underperforming after the Federal Government lowered Australian GDP forecasts. In light of the cautious trading we are experiencing in the region, we have seen US and European futures retreat after having posted big gains overnight. As a result, US and European markets are now pointing towards modest losses on the open.
Europe
With European markets having been down nine of the last ten sessions, the major indices were always likely to see a sharp snapback rally and momentarily drag oversold risk assets classes with them. The big question now is, how long will it last? Will indices spread betting investors use these little rallies to sell into?
UK money supply and mortgage approvals data out tonight could provide some near-term directional catalysts. Italy is due to auction €8 billion worth of government bonds this evening, and with yields demanded by investors now seemingly entrenched above 7%, traders will be watching to see whether these yields continue to blow out tonight.
Ahead of the European open we're calling the FTSE down 3 at 5310, the DAX down 4 at 5741 and the CAC down 11 at 3002.
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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"Dow Jones Spread Betting Market as EU Leaders Draft Bailout Framework" last update by AG, 29-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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