FTSE 100 Spread Betting Market Led Higher by Banks
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 26 September 2011: 11.00am Update
It has been a choppy start to the week so far, with the FTSE 100 opening sharply down before recovering thanks to a strong performance from banks and financial stocks following the weekend meeting in Washington.
By 10.30am (London time), both the FTSE 100 and FTSE 250 had gained 0.65% to 5099.84 and 9876.33 respectively, but the AIM All-Share index was down 1.2% at 709.68. European markets raced ahead however after the IMF meeting, with the DAX up 2.3% and the CAC rising 1.85%.
IMF meeting raises hopes but produces little
As expected, the IMF talks over the weekend concluded without any real progress being made. Much has been made of the talk of enlargement of the EFSF to €2 trillion, which would at least represent real progress in trying to halt the debt contagion, but a Greek default has edged closer with reports that investors will have to take a 50% cut on their holdings.
So, after more than a year, what we all expected is finally coming true - Greece will default. Whether it stays in the euro will be another question, but I would remind readers that the bankruptcy of Lehman Brothers in 2008 was supposed to stem the financial crisis, but merely heralded a new, worse phase.
By the same token, eurocrats are planning to halt the crisis at Greece, but their ability to respond effectively in such a situation remains in doubt.
Banks up but miners sag
As the morning progressed, the FTSE 100 managed first to pare all its losses and then make solid gains. Leading the way were banks and other financial stocks, just as on Friday, with spread betting investors buoyed by the weekend meeting in Washington.
For the moment, markets are optimistic that the EU and IMF will craft a solution to the Eurozone crisis that will forestall heavy losses for banks and other institutions with close ties to the EU.
Barclays and RBS both rose 6%, with Lloyds up 5.4%. HSBC and Standard Chartered, which are far less exposed to Europe, saw more modest gains.
However, substantial gains for the leading index were prevented by yet more losses for the mining sector. This reflects the continued fear that global economic growth will suffer as a result of the crises in the Eurozone and the wider financial system.
Falls for mining shares are only to be expected, given the bloodbath in commodity prices that has taken place over the past few days. The widespread drops in mining stocks mean that the FTSE 100 could struggle to make much upward progress, so long as one of its key components remains in the doldrums.
Gold and silver slide
Gold and silver continue to notch up impressive falls, as both metals replicate the significant moves seen last Friday.
The falls have been so impressive that questions have been asked about whether gold is a true safe haven. This is probably overdoing it slightly; it is true that the gold spread betting market has tended to gain when shares fall, but this pattern masks the fact that gold moves independently of equities, not in reverse correlation.
The factors driving the sell-off in gold are different to those prompting the drop in stock markets.
A hike in margins by Comex, which oversees much of the gold trading in the west, has forced some investors to liquidate their holdings, as the cost of holding gold futures increases, while an increase in silver margins by the Shanghai Gold Exchange has hit gold's cheaper cousin as well.
In addition, many investors are selling out of gold and silver in order to raise cash and cover losses in some of their other holdings. As a result I suspect that, to paraphrase Mark Twain, reports of the death of gold (and perhaps silver as well) have been exaggerated.
It would not be surprising to see further losses for the yellow metal, although a renewed bout of sovereign risk in Europe could easily prompt more gold buying. The exciting times look set to continue. For now, December gold futures are down 1.1% at $1622, while silver is off 2.3% at $29.42.
High hopes at Aberdeen Asset Management
Aberdeen Asset Management rose 1.4% to 170.8p after the fund manager said that full-year profit would be towards the top end of expectations, in spite of all the volatility in recent weeks.
Assets under management were down 4.8% at £176.9 billion, but Aberdeen said that outflows had not quickened in pace. Consensus forecasts are for pre-tax profit in the range of £262 - 297 million. Aberdeen cautioned that it only expected anaemic growth in the west 'for some time'.
US pre-market
Optimism appears to be in reasonable supply on the other side of the Atlantic, with Dow futures up 0.65% and S&P 500 futures 0.94% higher.
On the economic front today the Chicago Fed's national activity index for August is published at 1.30pm (a fall to -0.4 from -0.06 is forecast), while the Dallas Fed's manufacturing activity index is released at 3.30pm (both London time). This latter indicator is expected to improve slightly, edging upwards to -8 for September, from -11.4.
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.
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"FTSE 100 Spread Betting Market Led Higher by Banks" last update by AG, 26-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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