FTSE 100 Spreads Continue to Tumble Ahead of French Bond Auction
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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 November 2011: 11.00am Update
European shares extended losses this morning as Eurozone sovereign bond yields rose prior to Spanish and French debt auctions, and on worries of further contagion in the currency bloc.
By 10.15am (London time) the FTSE 100 had dropped over 1.45% to 5429.17, while the broader FTSE 250 was down 1.34% at 10,138.00.
Retail sales improve but confidence slumps
The Office for National Statistics announced this morning that early pre-Christmas promotions gave a surprise lift to UK retail sales in October, driving up volumes at their fastest pace since June.
Data showed that sales volumes (including automotive fuel) rose 0.6% last month, compared to forecasts for a fall of 0.2%. On the year, sales rose 0.9%, well above expectations for a flat reading. Retail sales (excluding fuel) rose 0.6% on the month.
The figures highlight the measures retailers have to take to lure in cash-strapped customers, who have been hit by the biggest squeeze on incomes in 30 years.
Meanwhile, a separate survey showed that consumer morale in Britain fell to a record low in October. Nationwide's consumer confidence index dropped to 36 from 45 in September as fears over the Eurozone, rising unemployment and the state of the economy knocked confidence.
The survey showed that consumers had become even more cautious and reluctant to spend at a time when soaring prices are outrunning sluggish wage increases, and with unemployment at a 17-year high.
Retailers Mothercare and French Connection have both been affected, reporting a first-half loss and lower third-quarter profit this year than last year, respectively. This morning, shares in Mothercare were down 4% to 149.60p, while French Connection shares plummeted over 20% to 56.12p.
Ratings agencies warn over Eurozone debt
Contagion concerns over the Eurozone sovereign debt crisis spreading to the US grew after Fitch Ratings warned last night it may lower its stable rating outlook for US banks.
The agency said that US banks face a serious risk of their creditworthiness deteriorating further if Europe's debt crisis deepens. Though US banks have a manageable exposure to European markets, further contagion poses a serious risk.
Also yesterday, Moody's Investors Service downgraded the senior debt and deposit ratings of ten German public sector banks.
Germany versus France
A clash between Germany and France over whether the ECB should intervene more decisively to tackle bond market turbulence is also keeping spread betting investors jittery this morning.
The Eurozone’s second-largest economy, France, which has become the bloc's latest member to face market scrutiny over its fiscal deficit, called for more aggressive ECB bond purchases.
Germany, however, remains opposed to using the central bank as the lender of last resort, saying it is up to individual governments to put their fiscal houses in order.
In my opinion, both have a point; however if you have agreed to share a common currency it is in everyone's best interest to allow the central bank to intervene. After all, the ECB's role is to ensure the stability of the euro and also the financial stability of Europe.
Germany needs to realise that if it does not start helping the periphery countries, eventually it too will be in the line of fire. The largest economy in the Eurozone should do what is best for the whole of the Eurozone, even if that means devaluing the euro. It's likely that all Eurozone countries will need to take a hit at some point if the debt crisis is to be contained.
Meanwhile in Greece, Prime Minister Lucas Papademos has turned his attention to finalising next year's budget, tackling a key demand set for the country to receive further international financing a day after he won a confidence vote. Mr Papademos is under more pressure after new data showed that Greece's austerity-fuelled recession had widened the budget deficit in October.
US pre-market
US December futures are pointing to a mixed open on Wall Street this afternoon with Dow futures flat at 11,839.00 and S&P 500 futures contracts 0.24% lower at 1228.00.
Looking ahead to this afternoon US economic data due for release will include weekly jobs data at 1.30pm and the Philadelphia Fed manufacturing survey at 3pm (both 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 November 2011: 6.00am Update
Global markets were weaker overnight in a choppy session which saw headline risk prevail.
US markets had pared losses on the back of comments from Boston Fed President, Eric Rosengren, which suggested that we may see coordinated action by the Fed and the ECB to help solve Europe’s problems.
However, US markets stalled their recovery into the close after Moody’s downgraded the senior debt and deposit ratings of 10 German banks, and reports that the Super Committee talks have stalled. Fitch also came out to say that Eurozone contagion poses a threat to US banks’ ratings outlook.
Among the major averages, the Dow Jones Industrial Average declined 1.6% to end at 11906. The S+P shed 1.7% to close at 1237 and the Nasdaq also dropped 1.7% to close at 2640. The losses in US markets came despite yet another round of strong US economic data. Industrial production in the US rose 0.7% in October, beating forecasts of a 0.4% increase.
Asia & Australia
Across Asia, regional markets are mostly weaker after picking up a negative lead from the last hour of trading on Wall Street. US markets lost significant ground into the close after Fitch came out to say that Eurozone contagion poses a threat to US banks’ ratings outlook.
However, Asian markets have pared early losses with some currently in positive territory. The Shanghai Composite is flat, while the Nikkei is up 0.2% and the Hang Seng has dropped 1%.
Australia's S&P/ASX 200 is up 14 points (+0.3%) at 4258, displaying resilience to offshore weakness, albeit on light volume. The index hit a five-day low of 4227 following a 1.7% fall in the S&P 500, before bouncing to 4263.2.
Resources are lending support, with BHP Billiton, Rio Tinto and Fortescue posting moderate gains. Banks are mixed, with ANZ Bank up 0.5% and NAB down 1%. Energy stocks are surprisingly weak, with Woodside Petroleum down 0.9%, despite a 3.2% rise in Nymex crude to US$102.59. Industrials and consumer discretionary sectors are the worst performers on the back of the stronger oil prices.
Today’s trade has been on light volume, indicating that financial spread betting investors are remaining cautious. Another negative factor for growth is the oil price rising above US$100, which is another burden on struggling economies.
Looking forward
Last night was a big night for the UK market on the economic front. Traders will again pay close vigil to the bond market, notably Spain where it will try and get €4 billion of ten-year bonds away, knowing yields are at historic highs.
The ECB will have to be active, however it really does seem that until we get a sense that the Germans are happy to see the ECB become lender of last resort, there are huge headwinds for the bond market and, therefore, risk assets. Data is thin on the ground, but traders will be keeping an eye out for UK retail sales data which is expected to show a 0.2% fall.
Ahead of the open we're calling the FTSE down 41 at 5468, the DAX down 83 at 5830 and the CAC down 40 at 3024.
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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"FTSE 100 Spreads Continue to Tumble Ahead of French Bond Auction" last update by AG, 17-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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