Fears Over US and European Banks Limit Shares 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 2 September 2011: 10.45am Update
European markets saw their multi-day winning streak come to a juddering halt this morning, as bad news out of Europe and the US combined with yesterday’s poor manufacturing readings to put investors in ‘risk-off’ mode.
By 10.30am (London time), the FTSE 100 was down 1.72% at 5235.72, while the FTSE 250 was 0.96% lower at 10475.26. Markets in Germany, France, Spain and Italy all fell by 2% or more.
Bundesbank speaks out against bailouts
A relatively calm morning in the Eurozone was shattered by news that the Bundesbank, Germany’s central bank, had issued a public denunciation of the entire Eurozone bailout programme.
The bank said that EU treaty law had been ‘completely gutted’ by the rescues of Greece, Ireland and Portugal, and that mass bond purchases by the European Central Bank had blurred the boundaries between monetary and fiscal policy, and were also undermining the democratic legitimacy of the EU.
The comments come at an inopportune time, as bond auctions by Spain and Italy this week have revealed that investor appetite for new debt issued by those countries is drying up, as bond funds remain nervous about the financial stability of Madrid and Rome.
European markets are all lower this morning, in part thanks to the slew of weak PMI readings yesterday, but the debt crisis is once again taking centre stage, now that the QE3 debate has moved to the sidelines.
The Greeks are doing their bit, too, to make life more interesting, sacking the head of the national independent budget committee a day after finance minister Evangelos Venizelos declared that the committee lacked the credibility or expertise to comment on budgetary matters.
The ECB has been purchasing bonds issued by Spain and Italy since 8 August, but this is only a stopgap measure, and if politicians fail to fill this vacuum then the autumn could become rather exciting.
US government to sue banks
Concerns about the health of banks on both sides of the Atlantic have been keeping shares spread betting investors busy for some weeks now, and, just when some of those worries were beginning to ease, news has emerged that the US government, via its mortgage agencies Fannie Mae and Freddie Mac, will begin legal action against a dozen large banks.
Washington will begin law suits against firms such as Goldman Sachs, Deutsche Bank, JP Morgan and Bank of America, in an attempt to recover up to $30 billion (if not more) for the sale of mortgage-backed securities.
The worry is that a government action against these banks could undermine earnings for years and weaken their financial position at the moment, causing investors to cut their exposure to financial stocks. Warren Buffett may have briefly stabilised Bank of America shares with his $500 billion investment, but the shares have begun to fall again.
Taken together, the Eurozone news and the US lawsuit are putting heavy pressure on UK banking stocks this morning. All five major banks are down, with Lloyds losing 4% to 34.17p and Barclays just behind with a 3.9% loss to 173.25p.
AstraZeneca falls
Shares in pharmaceutical giant AstraZeneca fell 3.5% to 2813.5p after the results of a drugs trial showed that the company’s cholesterol treatment Crestor was less effective than rival Pfizer’s Lipitor. Crestor is Astra’s biggest-selling product, with sales in 2010 of $5.7 billion, so the news is a significant setback for the company.
US pre-market
US futures are lower this morning, pointing to some losses for US markets following the opening bell. Dow futures are down 0.7%, while S&P 500 futures are 0.78% lower.
The key moment of the day will be the monthly non-farm payrolls report, out at 1.30pm (London time); 68,000 jobs are forecast to have been added in August, although Goldman Sachs cut its own forecast yesterday from 50,000 to 25,000. The unemployment rate is forecast to remain unchanged at 9.1%.
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 2 September 2011: 6.00am Update
In the US overnight, the major indices snapped a four-day winning streak as they fell all session, after opening the day higher.
In-line jobless claims and stronger-than-expected ISM manufacturing data wasn’t enough to keep stocks in the black, as participants traded cautiously ahead of tonight’s key jobless report.
The tech-heavy NASDAQ was the worst performer - losing 1.3% - while the S&P 500 and Dow Jones Industrial Average slid 1.2% and 1% respectively.
Asia & Australia
Across Asia, regional markets are all lower during Friday trade following the weaker leads on Wall Street and ahead of tonight’s key US non-farm payrolls report.
The Nikkei 225 and Hang Seng are the worst performers, both down 1.4%. The Shanghai Composite is down 1.2% while the Kospi is 1% softer.
In Australia, the ASX 200 is currently 1.4% weaker at 4245, having earlier traded to a session low of 4225. After US markets ended their four-day winning streak on concerns about tonight’s non-farm payrolls report, it was always likely to be a tough finish to the week for the Australian market.
It has certainly proven to be the case with the financial spread betting market seeing broad-based losses. The biggest losers on the session are the utilities, healthcare, consumer discretionary and materials sectors.
Europe
Turning to the European session, there's certainly a degree of uncertainty ahead of the non-farm payroll number due later, whilst the fact the US is heading into a long weekend is also going to encourage traders to take money off the table in the short term.
Financial stocks will also be worth watching on the back of reports that the US agency overseeing Fannie Mae and Freddie Mac is reportedly starting legal action against a dozen major banks, either today or on Tuesday, surrounding misrepresentation of mortgage backed securities. This could hit the beleaguered sector once again.
Aside from that employment report, Eurozone PPI is the other high profile economic reading on the agenda today, whilst there is little due in the way of earnings news.
The choppy trading that defined the end of August is still with us, so many will be hoping that the payrolls - and Labor Day marking the end of the summer break in the US - can bring a little more direction back to markets.
Ahead of the open we're calling the FTSE down 86 at 5333, the DAX down 106 at 5624 and the CAC down 50 at 3216.
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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"Fears Over US and European Banks Limit Shares Spread Betting Markets" last update by AG, 02-Sep-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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