FTSE 100 Spreads Power Ahead on Slowing Chinese Inflation
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 14 October 2011: 11.00am Update
After a slow start, the FTSE 100 has powered ahead once more, continuing a trend higher that began in the first half of last week.
A slowing of inflation in China helped to override yet another sovereign downgrade for a Eurozone nation.
By 10.45am (London time), the FTSE 100 was up 1.03% at 5459.06, while the FTSE 250 had gained 0.7% to 10,302.92. Markets in France and Germany also rose by 1%.
Spain downgrade produced little reaction
Spread betting markets have shrugged off a downgrade of Spain’s credit rating, with the FTSE 100 pushing further above the top end of its August to September trading range.
Standard & Poor’s cut the rating of Spain’s debt from AA to AA-, a one-notch reduction, citing the usual Eurozone malaise of weak growth and high debt levels, along with high unemployment. The move is the second ratings cut in a week for Spain, S&P’s peer Fitch having acted last Friday.
Yesterday, economists and officials said that Spain would fail to meet deficit reduction targets for the year, as low growth (again), excessive spending by some of the country’s local authorities, and a relaxation of cost controls ahead of a general election in November hampered the implementation of austerity measures.
So, let’s review the situation. This week, we have had three peripheral Eurozone nations (Portugal, Greece and Spain) all confessing that they will fail to meet their deficit reduction targets.
And yet, markets and Eurozone politicians continue to believe that the crisis can be solved by austerity. As every crisis-hit country (bar Ireland, which has shown impressive commitment to its own austerity measures) announces more cutbacks, markets rally.
The only problem is that most of these measures are never implemented (as in Italy), or are ignored by the general populace (Greece). A real solution to the crisis seems as far off as ever.
Fitch moves on banks
Ratings agencies have had a busy time of late, and this has continued with Fitch’s downgrade late last night of a swathe of the banking sector. In Britain, Lloyds and RBS had their ratings cut from AA- to A, while Barclays was put on negative watch.
Other major names, including BNP Paribas, Credit Suisse and Goldman Sachs were also placed on negative watch. The agency said it had taken into account the ‘increasing challenges’ facing financial markets, the result of slowing growth and government spending cuts.
FTSE presses higher
The FTSE 100 banking sector was largely unaffected by Fitch’s move, with Barclays and RBS up 1.8% and Standard Chartered 0.4% higher, while Lloyds and HSBC dipped slightly.
The mining sector surged forward once again after Chinese CPI data eased slightly in September, dropping back as expected to 6.1% from 6.2% in August.
This was hailed in some quarters as evidence that Chinese tightening measures had taken effect, preventing a nasty bust in that economy, but I would point out that inflation is still way above its average since 2007 of 3.7%.
Markets might hope that the Chinese dragon is still flying high, but officials in Beijing likely see it very differently. CPI remains stubbornly high, and they will be loathe to embark on stimulus for fear of stoking food price inflation and thus unsettling their population base.
ASOS falls back
It can be hard being the market’s darling. Internet clothing retailer ASOS slumped 6% to 1421p (and was as much as 10% down at one point) after sales growth slowed to 49% in the second quarter, from its first-quarter figure of 63%.
Overall revenues for the first half were up 56%, with the international business more than compensating for sluggish UK growth. ASOS still expects its official half-year figures to be in line with market expectations.
US pre-market
Wall Street looks set to recoup yesterday’s losses, with futures currently pointing to opening gains of 0.7% and 0.9% for the Dow and S&P 500 respectively.
US retail sales for September are published at 1.30pm (London time), followed by the preliminary reading of the Michigan confidence index for October at 2.55pm (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 14 October 2011: 6.15am Update
Overnight, stocks rallied off their lows of the day to finish mixed, dragged down by European bank stocks, a lacklustre earnings report from JP Morgan and Chinese trade data that again raised questions over China’s growth trajectory.
Among the major averages the Dow Jones Industrial Average fell 0.4% to end at 11478, the S&P shed 0.3% to 1203, while the NASDAQ added 0.6% to 2620. Among the major S&P sectors, financial and materials names were lower, while the technology sector finished higher.
It was another choppy session for US markets overnight, with spread betting investors having to digest a number of different new stories.
While the Slovakian parliament ratified plans to increase the EFSF rescue fund (which was clearly a positive), attention turned to the recapitalisation process itself. This means dilution in the eyes of the market should banks raise new capital as opposed to selling assets. As a result, European banks’ stocks were hard hit.
In the US, JP Morgan’s headline earnings beat expectations but were down from the previous quarter, with foreclosure provisions remaining at stubbornly high levels.
Once again Chinese trade numbers (which showed slower export growth) dominated market psyche, with commodities spread betting investors again raising concerns about the impact of a slowing China on the global economy.
However, it wasn’t all doom and gloom. After the bell we saw Google smash expectations on the revenue and earnings front, which should create some positive energy heading into tonight’s US session with the stock up more than 5% in after hours trade.
Asia and Australia
Across Asia, regional markets are all lower after Wall Street finished mixed overnight on continuing concerns about the effectiveness of any forthcoming “European solution”.
The Hang Seng is the region’s worst performer, lower by 1.3%, while the Nikkei 225 and the Shanghai Composite are seeing losses of 0.7% and 0.6% respectively. The Kospi is seeing a more modest decline of 0.2%.
In Australia, the ASX 200 is currently 1% weaker at 4200, just off its earlier session low of 4196. With US markets closing mixed overnight, and with there still being so many uncertainties over the global outlook, the local market looks to have run out of momentum in the short term.
Losses for the day are broad based with cyclical names across the materials and energy sectors seeing a bulk of the selling.
Europe
Turning to the European session, there's a swathe of influential economic releases due in the coming hours including Eurozone CPI, US retail sales and University of Michigan confidence figures.
With the latter two tipped to continue the theme of better than expected news out of the US, again the potential is there for markets to get another lift before the break. In terms of earnings, retail success story ASOS reports in the UK whilst Mattel continues the round of Q3 numbers on Wall Street.
Ahead of the open we're calling the FTSE up 16 at 5419, the DAX up 29 at 5943 and the CAC up 21 at 3207.
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 Power Ahead on Slowing Chinese Inflation" last update by AG, 14-Oct-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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