Eurozone Crisis Deteriorates Sending Indices Spread Betting Markets Diving
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 4 August 2011: 11.00am Update
Equity markets suffered yet more losses this morning as indices spread betting investors continued to slash their exposure to risky assets.
With the debt crisis in Europe deteriorating by the second and investors flocking into to safe-haven assets, the Bank of Japan engaged in one of its periodic efforts at direct monetary intervention.
The FTSE 100 is seen trading 0.35% lower this morning at 5565.60, while the broader FTSE 250 fell 0.4% to 10,951.43 at 10.40am (London time).
Central bank intervention back in fashion
One day after a surprise decision by the Swiss National Bank to cut its interest rates in order to prevent the Swiss franc from rising further, Japanese authorities engaged in an intervention of their own to ease buying pressure on the Japanese yen.
The decision had been widely expected as officials feared that the rising yen would have threatened to derail the export-reliant economy's recovery from a slump. To curb rises in the yen, Japan sold 1 trillion yen in assets and its central bank eased monetary policy.
This morning USD/JPY was already almost 3.5% higher at 77.0567. It remains to be seen whether the BoJ’s latest attempt to influence markets will be more successful than Switzerland’s, whose currency shrugged off Bern’s intervention efforts within hours, resuming its ascent against the US dollar.
As widely envisaged, the Bank of Japan also announced its decision to maintain its benchmark policy rate at a range of 0% to 0.1%.
European debt woes intensify
After an agreement by European leaders to provide a second rescue package for Greece and revamp the region’s rescue fund, reality has finally struck that the plan has actually done nothing to prevent the region’s sovereign debt crisis from engulfing further Eurozone countries.
Investors are now focusing their attention to Italy, the Eurozone's third-largest economy.
Italian prime minister Silvio Berlusconi yesterday resisted calls for a swift economic overhaul, heightening worries that Italy will be the next Eurozone country to require a bailout. In a public speech last night, Mr Berlusconi blamed global market turbulence for the current mess in Italy, without announcing any new policy measures to help calm markets.
Meanwhile, the president of the European Commission, José Manuel Barroso, released a statement calling the weakening bond prices of Spain and Italy ‘a cause of deep concern’.
Souring market sentiment are also signs that even Europe's stronger economies such as Germany, France and the Netherlands, might be headed for a period of weakness. After expanding at an annualised pace of more than 3% in the first quarter, the Eurozone is estimated to have grown at less than half that in the second.
Today markets will await the results of a Spanish bond auction of up to €3.5 billion, after yields on Spanish (and Italian) bonds jumped to 14-year highs in the past several days on fears that those economies would be engulfed by debt problems.
EBC and BoE monetary policies
In a news conference today, European Central Bank president Jean-Claude Trichet is expected to strike a wait-and-see stance on future rate moves. Market consensus agrees that the ECB is extremely likely to leave its key lending rate unchanged at 1.5% following July’s quarter-point increase.
The ECB is scheduled to announce the outcome of the policy meeting at 12.45pm (London time), followed by a press conference at 1.30pm (London time).
In July, European market sentiment gauges, including purchasing managers indexes and confidence indicators, have pointed to a slowdown. This helps substantiate forex spread betting market consensus that it is too early to signal a further interest rate hike.
The Bank of England is also widely expected to leave its key lending rate unchanged today at a record low 0.5%. The BoE announcement is expected at midday (London time), followed by a release of the monetary policy statement.
US pre-market
US September futures were trading lower this morning as mention of more quantitative easing in the US failed to provide a long-term boost to market sentiment. September futures for the Dow and S&P 500 are both down 0.5%.
Today, US weekly jobless claims data, due at 1.30pm (London time) will provide some excitement, but the focus will remain tomorrow’s non-farm payrolls data. Poor macroeconomic figures over the past few days have raised concerns that the US economy could fall back into recession.
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 4 August 2011: 6.00am Update
In the US overnight, stocks rebounded sharply from early lows, with the Dow and S&P 500 snapping their respective eight- and seven-day losing streaks.
This occurred as nerves over the possibility of US credit downgrades continued and economic data came in mixed. Services PMI data was weaker-than-expected - at its lowest reading since February 2010 - while ADP jobs data actually beat analysts’ expectations.
The NASDAQ was the best performer - adding 0.9% - while the S&P 500 and Dow Jones Industrial Average rose 0.5% and 0.3% respectively.
Asia & Australia
Across Asia, regional markets are mixed as worries over the state of global growth continue to weigh on investors’ decision making. The Nikkei 225 is the best performer - up 0.9% - after the Bank of Japan this morning intervened in the currency market to try and halt the yen’s rise, which is hurting the domestic economy.
Elsewhere, the Shanghai Composite is 0.3% firmer while on the downside, the Hang Seng and Kospi are 0.2% and 0.4% weaker respectively.
In Australia, the ASX 200 is currently 0.2% weaker at 4320, just of its earlier session low of 4316. Once again the Australian market has been unable to garner any kind of buying support, with any intraday mini-bursts being quickly sold into.
That’s a tell tale sign of a spread betting market bereft of confidence. Looking at the market’s performance today, it is a mixed bag. The healthcare and industrial sectors are the two best percentage advancers, while the materials sector is also seeing modest buying interest.
Unfortunately, these gains are being offset by heavier losses across the financial and energy sectors.
Europe
Turning to the European session, we'll be looking for rate verdicts from London and Frankfurt. That said, in light of the fractious state of recovery, there's no expectation of any change here.
Earnings news also continues with AIG, ING, Swiss Re, Munich Re and Lloyds set to keep the financials in focus. Elsewhere, highlights will include Inmarsat, British Land, Rio Tinto, Unilever, Kraft and GM, again giving the corporates potential to add meaningful upside to the market as a whole.
Ahead of the open we're calling the FTSE up 32 at 56157, the DAX up 71 at 6712 and the CAC up 41 at 3496.
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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"Eurozone Crisis Deteriorates Sending Indices Spread Betting Markets Diving" last update by AG, 04-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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