FTSE 250 Sheds 4.5 Percent on Weak UK Economic Data
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 9 August 2011: 11.45am Update
The FTSE 100 plummeted to a low of 4791.01 this morning as ongoing worries regarding global economic growth, European debt woes and the impact of the US downgrade instigated a flight to safety while gold rallied to a new record high in nominal terms.
Yesterday’s intervention by the ECB to buy Spanish and Italian government bonds did little to revive market anxiety. Spread betting investors continued their flight to perceived safe-haven assets, which saw gold jump over 4% this morning to $1779.00 per troy ounce.
The FTSE 100 index dropped over 5% and a hit a low of 4791.01 following the release of poor economic data. By 10.30am (London time) the FTSE 100 was 3.45% lower at 4895.17, while the broader FTSE 250 was 3.03% below its previous close at 9562.73.
Inflation in China rises
Disappointing news emerged from China today. Data released earlier this morning showed that China’s annual rate of inflation rose to 6.5% in July, ahead of consensus estimates. Economists had expected it to dip to 6.3% after June's reading of 6.4%. The unexpected rise kept inflation at its highest mark since June 2008.
The rise puts the country's central bank in a bind as it tries to keep prices in check without dragging down an economy facing increasing threats from abroad.
China has acknowledged that inflation will exceed its annual target of 4% this year. But with debt crises raging in the US and Europe, the People's Bank of China is widely expected to hold interest rates steady.
UK manufacturing falls
The FTSE 250 dropped 4.5% as official data released highlighted the fragility of the UK's economic recovery. Manufacturing production unexpectedly fell by 0.4% after a rise of 1.8% in May. Economists had predicted a 0.2% increase.
Industrial output was flat on the month after North Sea oil and gas extraction failed to show an expected rebound after maintenance work in May. Economists had forecast a 0.4% increase in industrial output over the month.
The manufacturing sector had previously been one of the few bright spots in the UK economy, however recent data releases have consistently showed that the sector’s activity growth has been steadily weakening since March. July's PMI index showed a contraction in the sector for the first time in two years.
Additional figures released today for June’s trade balance showed that the deficit in goods trade with the rest of the world widened to £8.873 billion from £8.467 billion. Economists had expected a deficit of £8.1 billion. This was the biggest deficit since December 2010.
The Bank of England will announce its quarterly update on growth and inflation forecasts tomorrow, but today’s data suggests that we will likely see growth forecasts cut for this year and probably also for 2012.
US pre-market open
Early this morning US futures were up by almost 2.5%, however reality soon hit and by 10.30am (London time), US September futures were trading over 1% lower, pointing towards further losses in US markets today. By 10.30am (London time), S&P 500 and Dow Jones futures hit a low of 1076.10 and 10,408.00 respectively.
Today the US Federal Reserve will hold its policy meeting and markets will pay close attention to any hints of further monetary easing.
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 9 August 2011: 6.00am Update
In the US overnight, it was another terrible session as stocks nose-dived after investors continued to flood out of risky assets, following S&P’s downgrade to the US credit rating and the view that the US is headed for recession.
The technology-laden NASDAQ was the worst performer - down 6.9% - while the S&P 500 and Dow Jones slumped 6.7% and 5.6% respectively.
Asia & Australia
Across Asia, regional markets are sharply lower - though well off morning lows - as fear and panic continue to dominate spread betting investors’ fears of another recession in the US and debt contagion across the EU.
The Kospi and Hang Seng are the worst performers - down 6.8% and 6.4% respectively - while the Nikkei 225 and Shanghai Composite are 3.5% and 1.1% weaker respectively.
In Australia, the ASX 200 is currently 0.5% higher at 4004, having risen sharply from its mid-morning lows of 3765. The obvious question now is whether this bounce-back will continue over the course of the day, or will the market roll over again, as it has so many times in the last few weeks.
Fear and anxiety ruled the morning session, with broad-based capitulation giving way to some mild buying and serious short covering this afternoon. Financials, energy and materials are all now in positive territory.
No respite
There's no sign of respite in equity markets globally as traders continue to take money off the table, and prices just keep falling.
We're currently looking at the FTSE starting below 5,000 for the first time in over a year, after Wall Street collapsed under the weight of yesterday’s ratings downgrade, and the associated implications for the economic recovery. The ongoing Eurozone debt woes are, of course, only adding to the mire.
There's been little cheer in Asia, with the only real signs of support in the safe havens like gold spread betting, which continues to set new record highs, pushing out towards the $1750 level. The FOMC meeting later today could be the next big driver for market sentiment amid speculation that further stimulus is needed to give the fragile US economy a shot in the arm.
With equities having taken such a pummelling, the right noises here could see bargain hunters tempted back in, but this is far from certain.
German trade balance data plus UK industrial and manufacturing production readings will all be under scrutiny. Again, however, these really aren't going to carry any clout for the market as a whole given the current mood.
Earnings news is also looking relatively subdued, though there are some high profile reports, including Intercontinental Hotels and Walt Disney. Ahead of the open we're calling the FTSE down 268 at 4800, the DAX down 333 at 5590 and the CAC down 165 at 2960.
A finish below 4900 on the FTSE-100 tonight will make for the index's biggest four-day fall in terms of points.
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 250 Sheds 4.5 Percent on Weak UK Economic Data" last update by AG, 09-Aug-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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