Financial Spread Betting Investors Enter Risk On Mode Despite European Downgrades
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 17 January 2011: 11.00am Update
European shares rose in early trade this morning, helped by mining stocks after economic growth data from China topped forecasts.
By 10am (London time) the FTSE 100 was 1.16% up at 5723.28, while the broader FTSE 250 was 1.63% higher at 10,649.71.
China's economy growth weakens
China's GDP appears to be heading for an even sharper slowdown in the coming months as export demand fades and the housing market falters.
Fourth-quarter year-on-year GDP grew by 8.9%, slightly stronger than the 8.7% forecast, and may give Beijing another reason to gently ease monetary policy.
The Q4 growth rate was the slowest pace since the second quarter of 2009, marking the fourth straight quarter in which growth has slowed.
Analysts expect that the early Lunar New Year holiday on 23 and 24 January probably skewed the data, and the effect is likely to linger through the first three months of the year.
Many factories in China typically step up production to clear orders before the festive period, and then temporarily shut down as workers head home to visit their families, suggesting that fourth-quarter growth probably benefited from the surge in manufacturing.
Meanwhile, other Chinese data painted a mixed picture of the economy. Retail sales grew by 18.1% from a year earlier in December, while industrial output also exceeded expectations, up 12.8% (year-on-year).
EFSF fund downgraded
Rating agency Standard & Poor's cut its credit rating of the Eurozone's European Financial Stability Facility (EFSF) rescue fund late last night, saying that the decision was inevitable after the cuts to France and Austria three days earlier.
However, financial markets showed little reaction to the latest blow, as it had been expected after only four triple-A Eurozone countries now remain, namely Germany, Luxembourg, Finland and the Netherlands.
Following the downgrade, French finance minister Francois Baroin said there was no need to shore up the EFSF fund, echoing the view of Germany.
Retailers struggle
It's been a mixed morning for retailers, with luxury brand Burberry posting a 22% rise in third-quarter revenue as wealthy shoppers and tourists, particularly in Asia, showed their resilience to deteriorating economies in Europe and the US.
The seller of raincoats and leather goods said this morning that it made £574 million of revenue in the three months to 31 December, compared with an average forecast of £569 million.
Separately, Dixons said sales declines accelerated over the Christmas period, though the firm maintained gross margins and claimed it outperformed competitors in Britain.
Dixons, home to Currys and PC World, said group sales at stores open over a year fell by 5% in the 12 weeks to 7 January.
Meanwhile, the latest victims of difficult trading conditions on the high street are UK retailer Past Times and fashion shop Peacocks, which both entered administration yesterday.
Additionally, data this morning showed that high street clothes discounting in December (as well as lower fuel prices) saw consumer price inflation fall to 4.2% in December, from 4.8% in November.
Looking ahead
US markets are set to re-open higher this afternoon after a long weekend. Futures contracts for the S&P 500 are 1.04% higher at 1302.30, while those for the Dow Jones are up 0.95% to 12,508.00.
Looking ahead to this afternoon it is a quiet day on the economic data front, with only the Empire manufacturing survey due, at 1.30pm (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 17 January 2012: 6.15am Update
European markets gained ground overnight, as investors shrugged off news of the S&P downgrades and took comfort in a successful French Treasury bill sale.
US markets were closed for the Martin Luther King Day holiday. S&P followed up by stripping the EFSF of its AAA credit rating to AA+, which it had warned might happen in the event that one of its guarantor nations lost its AAA rating.
Despite Friday’s ratings downgrades, French yields actually cooled in a sign that investors are paying less attention to the rating agencies.
The DAX climbed 1.3% to close at 6220, the CAC put on 0.9% to finish at 3225 and the FTSE added 0.4% to close at 5657.
Asia
Across Asia, equity markets are roaring higher, supported by some strong economic data from China and a fairly positive European session.
The Chinese economy grew 8.9% in the fourth quarter from a year earlier and expanded 9.2% in 2011. Analysts were expecting an 8.7% gain in gross domestic product in the fourth quarter and a 9.2% increase for the full year.
The report also showed industrial production rose 12.8% in December from a year earlier. That compared with a 12.3% median forecast.
It seems the region was oversold yesterday on the back of S&P’s ratings downgrades. This helped regional markets extend their gains today.
Financial spread betting investors seem to be back in ‘risk-on’ mode after a fairly muted reaction by European markets following the downgrades.
The Shanghai Composite Index has advanced 0.5% and the Hang Seng has jumped 1.6%. Elsewhere in the region, the Nikkei is up 0.6% and the ASX 200 is 1.5% higher.
US & Europe
Following the strength we are seeing in the Asian session, US and European markets are pointing towards a positive open.
Market participants in the US will be looking to react to all the developments from yesterday and today’s session as they return from the Martin Luther King Day break.
Most analysts feel S&P’s downgrade for the EFSF is a non-event and will not do much to hamper sentiment. The facility's CEO, Klaus Regling, said in response that the EFSF's investor base was well-diversified and noted that it still possessed AAA ratings from two other agencies.
France managed to launch a successful bill auction where the one-year yield actually fell despite the S&P downgrade. This largely spurred yesterday’s gains.
Investors are likely to now focus more on ECB President Mario Draghi’s speech which took place post market close and the prospect of a Greek default.
With troika officials descending upon Athens this week, some analysts feel it is clear the stakes are being raised and there may be some need for contingency planning up ahead.
Analysts also feel Portugal may prove to be a worry in the short term as it now has junk status with all three major ratings agencies.
On a more positive note, European markets are likely to get a massive lift from the data out of China which has been highly supportive of risk assets.
Investors piled back into risk currencies on expectations that China’s economic growth will sustain demand for exports.
AUD/USD has been one of the biggest beneficiaries in the Asian session, rallying from a low of around $1.030 to a high of $1.0399.
There is a lot of economic data to dissect tonight with UK CPI, RPI as well as a speech by BoE Governor King. On the European front there is also CPI and economic sentiment data to look out for.
Ahead of the European open we're calling the FTSE up 37 at 5694, the DAX up 25 at 6245 and the CAC up 12 at 3237.
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 Investors Enter Risk On Mode Despite European Downgrades" last update by AG, 17-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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