FTSE Spread Betting Market Lower on Slower Chinese GDP Growth
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 18 October 2011: 11.00am Update
The FTSE 100's losing streak ran into a new trading day, as China worries took centre stage in investors' minds.
Slowing GDP growth in that economy hurt mining stocks, while fresh concerns about France's AAA rating hit financial shares.
By 10.50am (London time), the FTSE 100 was down 1.1% at 5376.82, while the FTSE 250 had shed 0.92% to 10156.33. European markets were also lower, extending their falls into a second day.
China growth slows
It's nice for spread betting markets to have more than one thing to worry about, as it provides variety for traders (and market commentators). Yesterday the market took fright at comments by the German finance minister. Today, China is giving investors reason to fret.
GDP in the world's second-largest economy grew at 9.1% in the third quarter. Now, Western readers might be tempted to note that most politicians in Europe and the US would give their right arm for growth anywhere near this level. However, for China, this is a potentially worrying development.
Growth for the July-September quarter had been forecast to be 9.3%, still down from the second quarter's 9.5%.
The 9.1% reading is a two-year low, but is not sufficiently low for the People's Bank of China (PBOC) to start engaging in stimulus programmes, since the simultaneous release of industrial production and retail sales (both of which grew ahead of expectations during September), show that the economy as a whole is still growing strongly.
As has been noted many times before, the Chinese government is acutely sensitive to inflation, since price stability is one of the key pillars of the current Chinese state. In return for restricted political freedoms, the people expect strong growth and only moderate inflation.
China's apparatchiks know that they risk civil disturbance if they fail to keep prices under control. So, while we might not see new tightening efforts (at least not for a while), a new stimulus effort is also unlikely. Investors hoping for China to ride to the rescue of the developed world, as in 2008/9, are likely to be disappointed.
The weaker China data had the expected effect on mining shares, which are closely tied to growth in the Dragon economy.
Rio Tinto was hardest hit, down 5% at 3127p, while Vedanta and Xstrata both shed more than 4% and BHP Billiton and Antofagasta lost 3.3%. Asian-focused bank Standard Chartered also lost ground, down 4.6% at 1362.5p.
France worries hit euro
However, there are also new reasons for worry in the Eurozone. Ratings agency Moody's warned that France's AAA rating could be placed on a negative outlook, if the costs of a bank recapitalisation and a Eurozone bailout proved to be too much for Paris.
Moody's said that France has less room to expand its borrowing than in 2008, adding that the country needed to make new progress on fiscal and economic reforms (now, where have we heard that before?).
The key point is that the Eurozone rescue fund (the EFSF) requires contributors to have an AAA rating. If France, which is the second largest contributor to the fund after Germany, loses its rating, then the majority of the burden falls on Berlin.
This may be too much even for the Teutonic titan to bear. The euro continued its decline into a second day, falling 0.33% to $1.3386, while RBS fell 0.96% to 23.84p and Barclays dropped 2.75% to 171.5p
UK inflation surges
Year-on-year growth in UK consumer price inflation accelerated beyond expectations, with the increase hitting 5.2%, the same level as in September 2008. The forecast was for a 4.9% growth in prices, but increases in gas and electricity has driven the rise.
Core CPI, which strips out food and energy (and is therefore less volatile, and, coincidentally, is the Bank of England's favoured measure), rose to 3.3%, climbing from August's 3.1%.
Nonetheless, the Bank of England stuck doggedly to its line that inflation would slow significantly during 2012. Sterling slipped following the news, as investors worried that British consumers faced a real squeeze on disposable income as a result of higher prices, which would in turn hit UK growth.
US pre-market
Dow futures are down 0.3%, while those for the S&P 500 are currently 0.27% lower, hinting at a continuation of yesterday's drop for US stocks. On the economic front, US producer price data for September is published at 1.30pm (London time), while Fed chairman Ben Bernanke will give a speech at 5.30pm (London time) in Boston.
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 18 October 2011: 6.00am Update
Overnight, US stocks closed near their session lows, after Germany’s Finance Minister doused expectations there would be a definitive solution at this weekend’s European summit.
Yesterday’s Asian market gains, and early European advances had presumed a weekend resolution, but shares quickly reversed course when this hope was dashed.
Among the major averages, the Dow Jones Industrial Average shed 2.1% to end at 11397, the S&P slumped 1.9% to 1200, while the NASDAQ plunged 2% to 2614. All S&P sectors finished lower, led by declines among materials and financial names.
Edgy markets
The edginess of spread betting markets was on full display last night, with ‘headline risk’ once again coming to the forefront.
Yesterday, markets rallied on expectations that this weekend’s summit would yield some sort of definitive blueprint to address the European debt crisis - at least that’s what all the headlines were saying. Asian markets had surged, European markets jumped out of the blocks, and US futures were pointing to another healthy night of gains.
Then came comments from German finance minister Wolfgang Schaeuble, who rejected claims a solution would be announced this weekend, and markets declined sharply. So, anticipation and hopes for this solution during this ‘gestation period’ have been dashed, and are going to be met with heavy selling, which began last night.
While ‘no solution this weekend’ was last night’s dominant headline, it wasn’t all bad news. US companies continued to roll out mixed to pleasing earnings results, while US industrial production numbers were in-line with expectations, at 0.2% growth for the month.
However, the Empire State manufacturing index remained in contraction with a reading of -8.5, worse than the -3.9 which the market had anticipated.
Asia & Australia
Across Asia, regional markets are all weaker after Wall Street dropped overnight on concerns over fresh moves to address Europe’s debt crisis and the news that China’s economic growth slowed by more than forecast in Q3 has seen the region extend its losses.
The Hang Seng is the region’s worst performer, down 2.8%. Elsewhere in the region, the Nikkei 225 is down 1.6% and the Kospi has shed 1.4%. The Shanghai Composite is outperforming the region, with a 0.9% loss.
In Australia, the ASX 200 has extended its loss to 2% on the back of the worse-than-expected Chinese economic data. The index has broken below key psychological support at 4200 and is currently trading at a fresh session low of 4190.
We had seen the market come off its lows following the RBA minutes, which hinted at a rate cut, should inflation remain in the targeted zone. Almost all sectors are weaker, with a broad sell-off across the resources. The materials and energy sectors are the worst performers, while the telcos are higher on the back of Telstra’s NBN shareholder approval.
Europe
Turning to the European session, the expectation is set for Europe to keep moving lower at the open.
Many had cited the recent gains as looking unsustainable, but this will doubtless look disappointing to those who had been hoping for an upbeat final quarter for the year.
Whilst it may arguably have never shown signs of going away, the renewed prospect of failure is going to keep the Eurozone story very much in focus, so expect each note here to be closely scrutinised.
There are, however, some other economic releases out that will be worth watching, including UK inflation, German ZEW survey and US PPI.
Federal Reserve Chairman Ben Bernanke is also scheduled to speak later, whilst the earnings season continues apace with Goldman Sachs - tipped by some to post a loss for the quarter - Apple, Bank of America, Intel and Coca Cola all amongst the higher profile reports due.
Elsewhere Xstrata and Bellway will report in London, whilst LVMH, Accor and Danone are all slated to release Q3 numbers in Paris, but arguably even the occasional shock on the corporate agenda is unlikely to shift attention away from sovereign debt.
Ahead of the open we're calling the FTSE down 37 at 5400, the DAX down 49 at 5810 and the CAC down 21 at 3145.
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 Spread Betting Market Lower on Slower Chinese GDP Growth" last update by AG, 18-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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