Financial Spread Betting Markets Lifted as Italian Bond Yields Slip Back
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 11 November 2011: 11.00am Update
The expectation that Italy will soon begin the process of forming a new government lifted financial spread betting markets this morning, while Italian benchmark yields continued to slip back from bailout territory. However, caution persisted, and the gains were proving hard to sustain by mid-morning.
By 10.30am (London time), the FTSE 100 was up 13.8 points at 5458.65, while the FTSE 250 was 0.68% higher at 10,256.77.
Eurozone crisis remains the main event
And so the crisis drags on. Today the Italian Senate, the upper house of the bicameral legislature, will hold a debate and vote on further austerity measures, which are aimed at restoring lost confidence in the country's economy.
With the lower house voting at the weekend, the measures seem set to pave the way for Silvio Berlusconi to step down next week. A technocrat government headed by Mario Monti is the likeliest outcome, which could stem the rout of confidence in Italian finances.
Measures in the austerity programme include an increase in VAT from 20% to 21%, a freeze on public sector salaries until 2014, an increase in the female retirement age to 65, the same as for men (although the age level will not reach 65 until 2026).
Meanwhile, there are increasing worries that the EFSF rescue fund will not be able to be sufficiently leverage its existing funds to anywhere near the level planned by the latest Eurozone summit.
A report in the Financial Times quoted the EFSF's head, Klaus Regling, who said that market volatility would make it harder to attract investors back to the continent's financial system.
It had been planned to increase the €250 billion remaining in the fund (after the rescues of Greece, Ireland and Portugal) by four or five times, but Mr Regling now fears that only leverage of three to four times will be achieved.
The issue now is one of timing - the EFSF needs space to obtain the needed leverage before helping Italy; a decision to aid Rome before the leverage was achieved would reduce the base amount in the fund, severely limiting its firepower.
Rolls-Royce and Hornby power ahead
Engineering group Rolls-Royce said that it was still on target to meet first-half expectations, with trading since July proceeding as forecast. Order flow was reported to be encouraging, with the Boeing 787 Dreamliner, on which Rolls Royce worked, entering service during the period. The shares gained 2% to 724p.
Revenue growth at model maker Hornby slowed to 4% in the first six months of the company's year, as consumers put the brake on spending during the period.
However, sales of model locomotives had been encouraging, boosted by the new 'Tornado' product, a model of the first new steam locomotive to be made in Britain since the 1960s. The half-year dividend was left unchanged at 1.7%, with the shares rising 1.12% to 136.51p.
US pre-market
US futures are broadly higher this morning, with Dow contracts up 0.42% and S&P 500 futures 0.6% higher. Only the first November reading of the Michigan consumer confidence index is released today, at 2.55pm (London time), with the reading forecast to rise to 61.5 from 60.9.
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 11 November 2011: 5.00am Update
US markets recovered overnight as Italian debt yields cooled from elevated levels and Lucas Papademos was appointed as Greece’s new Prime Minister.
Italy’s 10-year bond yield dropped to 6.89% after the ECB bought the country’s debt and the nation sold all the bills planned at an auction. Some positive economic data from the US also contributed to the recovery.
Among the major averages, the Dow Jones Industrial Average surged 1.1% to end at 11914. The S&P climbed 0.9% to close at 1240 and the Nasdaq added 0.1% to close at 2625. US jobless claims came in at a better-than-expected 390,000, dropping to the lowest level in seven months.
Amidst all the chaos in Europe, the US economy has seen a gradual improvement out of the limelight. Apart from the jobless claims report, the US trade balance data showed the trade deficit unexpectedly narrowed in September to the lowest level this year, as exports surged to a record high.
Asia & Australia
Across Asia, regional markets are enjoying mild gains after picking up some positive leads from overnight trading. There is a slight improvement in sentiment after some positive news out of the US and Europe.
However, spread betting investors remain cautious ahead of the weekend, with headline risk remaining a key element. The Hang Seng is leading the region with a 1% gain. The Nikkei is down 0.2% on the back of weaker-than-expected tertiary industry activity data, but the Shanghai is 0.3% stronger.
Australia's S&P/ASX 200 index is up 0.8% at 4278 after hitting an intraday high of 4290.5, following the 0.9% rise in the S&P 500 on lower jobless claims, ECB support for Italian bonds and Greece's appointment of former ECB Vice President Lucas Papademos as Prime Minister.
After a fairly subdued morning, the financial spread betting market seems to have picked up the pace in the afternoon session.
Looking at the companies, Fairfax is down 6.5% at 86.5 cents on heavy volume after Fairfax family company Marinya sold its 9.7% stake at 85 cents late Thursday. Ramsay Health Care is up 1.4% after reaffirming its earnings guidance, while securing a $2 billion equivalent debt facility for future acquisition, development projects and working capital.
Leighton Holdings is flat after saying work in hand fell 5% to $44 billion since June 30, while reaffirming fiscal 2012 earnings guidance.
Europe
There is every chance we will get progress on who is likely to lead Italy over the weekend, and we should see the Italian parliament give final approval to budget law as well, so this may cause some worry to euro shorts.
However, it seems that while last night should be seen as a net positive for the bulls, the general consensus is that we need to see the ECB being more aggressive in its bond buying strategy, to buy time for Italian politicians to sort themselves out.
No one is convinced by the EFSF, even if there is some sort of leverage involved. With the ECB becoming lender of last resort, to some, it seems the only way to bring yields down to sustainable levels. However, we will have to wait until the New Year when ECB member Mr Stark steps down and we have seen changes to the European treaties.
Data is thin on the ground in the UK with the only major economic announcement being PPI input numbers. Ahead of the open we're calling the FTSE up 40 at 5484, the DAX up 43 at 5911 and the CAC up 15 at 3080.
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 Markets Lifted as Italian Bond Yields Slip Back" last update by AG, 11-Nov-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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