Financial Spread Betting: Banks Hold Record Deposits and Remain Unwilling to Lend
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 5 January 2011: 11.00am Update
The return of Eurozone woes to haunt markets has prompted falls for the FTSE 100 this morning, as Europe-related concerns outweigh any positive boost from an improved reading on activity in the UK services sector.
By 11am (London time), the FTSE 100 was down 0.77% at 5626.39, while the FTSE 250 had lost 1.07% to 10,163.48.
It's the Eurozone - again
A combination of worries about Europe is taking its toll on markets and on the euro / dollar spread betting market this morning.
The financial health, or otherwise, of the continent's banking system is under the spotlight, after news earlier this week that borrowing from the ECB by European financial institutions remains near record levels. In addition yesterday's rights issue by Italian bank Unicredit sent the stock plummeting.
The latter event indicates the high degree of nervousness among investors about putting their money into those banks that could suffer heavily if the Eurozone crisis gets much worse.
In Spain, investors are worried about the size of the bad loans on the books of Spanish banks, and that Spain lacks the money to support these banks on its own.
In addition, talk continues of a bailout package for Madrid itself, after the regional government in Valencia was late in repaying €123 million of debt to Deutsche Bank.
Bond yields for Spain are on the rise again this morning, while those for Italy are back above 7%, the totemic level seen as unsustainable in the long-term.
Finally, Greece hovers in the background, after warning earlier this week that it might be forced to leave the euro if negotiations on the second bailout are not completed by March.
You might be forgiven for thinking that a Greek exit from the euro would be a good thing, but it could easily spark a chain reaction of departures if markets decide that countries will be let go from the union if the situation becomes sufficiently dire.
Tech stocks rise, banks and miners drag
Tech stocks are on the up on the FTSE 100 this morning, helped by broker upgrades. ARM rose 3.6% to 617p, pushing back towards its high of 2011 of around 650p, after UBS said that it had put the company on its 'most preferred list'.
Sage Group, the accountancy software firm, rose 1% to 295p thanks to an upgrade from 'neutral' to 'buy' from Bank of America Merrill Lynch.
The Eurozone worries and a general resurgence of safe-haven buying meant that both banks and miners are taking losses at present. Of the banks, only Standard Chartered is up, while Lloyds, RBS and HSBC are all down more than 1%.
Looking ahead
Employment data in the US is the main focus this morning, as the weekly jobs numbers are joined by ADP data for December (delayed by a day due to the new year holiday).
The ADP figure is expected to be 178,000 for the month, down slightly from November. US futures point to a poor start for Wall Street, with the Dow down 76 points and the S&P 500 off by 10 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 05 January 2012: 5.00am Update
Overnight, US markets finished little changed after a sharp rally in the previous session, with ongoing European issues continuing to keep investors wary about the prospects for markets in 2012.
Among the major averages, the Dow Jones Industrial Average added 0.2% to end at 12418, the S&P was flat at 1277, as was the NASDAQ which closed at 2648. Among the major S&P sectors, materials, technology and industrials were all modestly higher, while financials finished lower.
Issues out of Europe once again plagued financial spread betting market sentiment. Commercial banks held record overnight deposits, with the ECB highlighting a continuing unwillingness to lend to each other.
A €5 billion auction of 10-year German Bunds was barely covered and UniCredit, Italy’s biggest bank, had to offer shares at a massive 43% discount to get a €7.5 billion capital raising away.
These were certainly concerning signs for Europe and this was reflected with the FTSE, DAX and CAC all weaker between 0.5% and 1.6%.
On the other side of the Atlantic, the outlook seems to be becoming increasingly optimistic, and there is a growing belief that the US economy can continue to expand even in the face of a European recession.
US data over the last few months has been increasingly positive and frequently beating expectations, and this was evident again last night with factory orders for November rising 1.8%, up from October’s 0.2% decline.
Asia & Australia
Across Asia, regional markets are mixed after a flat close on Wall Street last night. The Kospi is the region’s best performer, higher by 0.3%, while the Hang Seng is seeing a gain of 0.2%. Elsewhere, the Nikkei 225 and the Shanghai Composite are seeing losses of 0.5% and 0.3% respectively.
In Australia, the ASX 200 is currently 1.2% weaker at 4137 just off its earlier session low of 4130. Despite US markets finishing relatively unchanged, the Australian market looks like it’s paying the price for its relative outperformance yesterday, with all sectors currently in negative territory.
The biggest losers on the day are the energy, industrial and materials sectors, each with losses of more 1.4%.
Europe
Yesterday was a sobering reminder that despite the initial pop in risk assets, nothing has really changed and European issues are more likely to get worse before we see a dramatic improvement.
That being said it seems the pick up from the lows on the S&P once again highlighted that if we are going to see equities struggle, US equities are still the place investors want to be leveraged too. The end result is a slightly higher call for European bourses today.
The correlation that was prevalent between the euro, S&P and AUD seems to have shown signs of abating overnight. However one has to take the threats from Greece seriously that there needs to be an agreement sooner-rather-than later on the PSI or a messy default will ensue and all asset classes will get hit, badly.
Unicredit stole the limelight and one has to wonder if the event rattled the nerves of banks going down the same route of appealing to shareholders given the shocking participation and the overhang of stock that now lies with the underwriters.
The German bund auction seemed to get the most attention in the market given the selloff in risk assets after their previous attempt. Having said that, perhaps the bigger story was the significantly higher demand seen at yesterday's gilt auction.
This backs up the notion that, given the record amount of UK debt bought in October and November by international investors, the UK has become a perceived beacon of safety, subsequently helping EUR / GBP to the lowest levels since September 10.
US data comes in thick and fast today with weekly jobless claims, ADP private sector jobs print and ISM services PMI.
Expect analysts to be hard at work revising their estimates to today's Non Farm Payrolls report, with perhaps the most accurate indicator being the employment component of the ISM services report.
France will also look to tap the market for around EUR7-8 billion in a range of longer dated bonds. We are not currently expecting any significant demand given the recent spike higher in yields and the lingering threat of action from S&P.
Ahead of the open we are calling the FTSE at 5680 (+12), DAX at 6120 (+9) and CAC 3197 (+4).
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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"Financial Spread Betting: Banks Hold Record Deposits and Remain Unwilling to Lend" last update by AG, 05-Jan-2012
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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