ECB Liquidity Operation Boosts Indices Spread Betting Markets
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 21 December 2011: 12.00pm Update
Christmas has come just in time for the bourses of Europe, as the ECB announced the results of its latest liquidity operation.
The sense of relief among investors is almost palpable, as the ECB finally begins to deploy its overwhelming financial firepower in defence of the euro.
By 10.30am (London time), the FTSE 100 was up 0.58% at 5451.18, while the FTSE 250 was up 0.66% at 9933.22. European markets also gained around 1%, helped by the ECB auction news.
ECB saves the day?
It turns out that Father Christmas is not a large jolly man who lives near the North Pole. He is in fact a rather ordinary-looking, middle-aged Italian, who also goes by the name of Mario Draghi.
The ECB's decision to turn on the cheap money tap sparked the wonderful pre-Christmas rally we'd all been waiting for, and the festive cheer has carried over into a second day.
When details of the loans were released, markets pushed higher as figures showed very high levels of demand for its three-year loans.
More than 500 European financial institutions were reported to have taken part in the offer, receiving €489 billion from the Long Term Refinancing Operations (LTROs).
Expectations had been for an amount between €250 and €350 billion. Some in financial spread betting markets are likening the programme to 'stealth quantitative easing', as the ECB provides funding for banks to go on a shopping spree of Eurozone peripheral debt.
Another LTRO will be held in February, providing another opportunity for banks to shore up the European bond market.
Little festive cheer at Thorntons
Christmas cheer is in short supply at Thorntons this morning, as the chocolatier announces that it will incur a full-year loss as a result of poor trading and a costly programme of store closures.
Exceptional costs and high rents, along with charges related to the closure of various outlets around the country, mean that the company has cut its profit forecast from the previous figure of £4.5 million.
Stripping out exceptional items and leases, it will likely break even, but this is small comfort, given that these 'exceptionals' are probably going to be repeated in the next financial year.
The shares, which started the year at 95p, dropped 35% to 24.53p this morning, down 72% over 12 months.
Looking ahead
November existing home sales are published at 3pm (London time) this afternoon and investors will be hoping that they show similar growth to the starts and permits figures announced yesterday.
Following Tuesday's yuletide rally on Wall Street, the Dow is forecast to start 69 points higher, with the S&P 500 up 7 points.
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 21 December 2011: 4.45am Update
A closer look at the overnight price action in many of the risk assets, and notably EUR/USD, felt like the by-product of short covering in what was an illiquid environment.
EUR/USD did manage to trade above $1.31, but technical selling was evident at $1.3132 (38.2% retracement of the sell-off from December 9 to 14), which marked the session high.
A piece of negative news, sticking out like a sore thumb in a session filled with positives, was that once again we are seeing gridlock in the US. The Senate and House of Representatives are bickering over payroll tax cut extensions and unemployment insurance extensions.
Given the strong moves in other assets though, it seems the market chose to focus on strong housing starts and building permits and German IFO data. In addition, there was positive rhetoric from the Greek Finance Minister that they are closer to reaching a deal with private bond holders to effectively write off 50% of its Greek debt holding.
However, there are reports that one of the private bond holders walked out of the meeting declaring he ‘can’t see any deal this year’, contradicting the Finance Minister’s statement.
Among the major indices, the Dow Jones Industrial Average surged 2.9% to close at 12,107. The S&P climbed 3% to 1242 and the NASDAQ rose 3.2% to 2603.
Asia & Australia
Given these leads from Wall Street, Asian markets are all higher. The Kospi is the region’s best performer, higher by 3.1%, while the Hang Seng and the Nikkei 225 are seeing gains of 1.5% and 1.3% respectively. The Shanghai Composite is seeing a more modest advance of 0.3%.
The Shanghai Composite, which has dropped 4.5% in December, is etching out its first gain in three days as Premier Wen Jiabao has pledged capital support to small and medium-sized enterprises.
Meanwhile, the Shanghai Securities journal reported that the national pension fund invested 10 billion Yuan ($1.58 billion) in 20 stock funds last week.
Interestingly, we are not far from the year’s low in USD/CNY, which will no doubt please the US. The real talk amongst commodity and currency traders, however, is of another reserve ratio requirement (RRR) cut by the PBOC, and a move over the Christmas period cannot be ruled out.
Europe
On another note, and perhaps it is no coincidence, once again we saw a very successful bill auction in the periphery. Spain received €18 billion worth of bids on €5.6 billion worth of three and six-month bills, ahead of tonight’s closely watched ECB LTRO (Long-Term Refinancing Operation).
We are expecting the amount tendered by European banks to be strong given the signs from the low demand from last night’s seven-day ECB tender. This was effectively transferred into the special one-day operation, in preparation for funds being available for tonight’s three-year LTRO.
What is clear is that the market is hoping for strong participation from the banks. They will borrow from the ECB at 1% and many politicians will hope that they will use these funds to buy sovereign debt and chase yield, a situation which has merit but is not our base case.
On the other hand, and perhaps more feasibly, they might use them to secure funding for the immediate future and ensure financial stability throughout 2012.
Expect price action to be influenced when the ECB announces the total amount borrowed. An above-consensus number, currently around €300 billion, should see further shorts covered and perhaps trigger stops above $1.3150.
It seems European bourses are set to open positively, pricing in a strong finish to Wall Street and upbeat Asian trade. With little in the way of earnings or bond auctions to focus on, the BoE minutes released at 09:30 GMT will be closely watched.
Ahead of the open we are calling the FTSE at 5443 +24, DAX at 5981 +44 and the CAC at 3076 +21.
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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"ECB Liquidity Operation Boosts Indices Spread Betting Markets" last update by AG, 21-Dec-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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