Greek PM Bailout Referendum Decision Shocks Spread Betting Markets
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 1 November 2011: 11.00am Update
European equities extended yesterday's losses after the Greek prime minister called a referendum on the latest bailout deal, adding fresh concerns to the Eurozone crisis, while Chinese data showed China's factory activity slowed to a near three-year low.
By 10.30am (London time) the FTSE 100 slumped 2.74% to 5392.23, while the broader FTSE 250 was 2.87% lower at 10,179.10. European equities were down over 4% this morning.
Greek tragedy
Greek PM George Papandreou shocked shares spread betting markets last night after he announced that he will put Greece's bailout to a referendum. The announcement threatened to intensify the Eurozone crisis after its leaders agreed last week on a second bailout of €130 billion for Athens, and a 50% write-down on its debt.
The price of the package would involve Greece taking on harsh state spending cuts that have unleashed a tide of anger among Greeks.
Mr Papandreou told the Greek voters it was up to them to decide the country's fate, saying the referendum would take place in a few weeks, though finance minister Evangelos Venizelos said it would probably be held early next year.
The immediate market reaction to the announcement was negative, which saw the EUR/USD spreads tumble more than 1% to a session low of $1.3677.
Meanwhile Greece is due to receive an €8 billion tranche on loans in mid-November, which is likely to run out during January, around the time of the referendum. This would leave the government with no funds if there is a 'no' vote, further intensifying fears of a Greek default and contagion to other Eurozone nations.
Chinese PMI slows
PMI data released today showed that China's big manufacturers ran at their slowest pace in October since early 2009. China's official PMI reading fell to 50.4 in October from 51.2 in September, countering expectations for a rise and blaming the drop on the weak European and US economies.
Private sector PMI set a different tone though, showing a rise in October to 51.0, from 49.9 in September. Taking both PMI readings into account, they back the consensus view that Chinese interest rates will remain on hold as Beijing balances a need to tackle inflation with concerns that growth is slowing down.
The official PMI reading recorded falls across key component parts, with new orders (which makes up 30% of the index) dropping to 50.5 from 51.3 and production (25% of the index) easing from 52.7 to 52.3. New export orders dropped to 48.6 from 50.9.
As Europe (China's largest export market) faces fresh struggles to resolve its debt problems, many investors believe the Chinese economy faces more gloom and further economic slowdown in the future.
UK on brink of recession
The British economy is hovering on the brink of recession despite better than expected growth in the third quarter.
Data released this morning showed that UK GDP grew by 0.5% on the quarter as business services and finance posted the strongest quarterly increase in four years, while the annual growth rate eased to 0.5% in the three months through September, from 0.6% in the second quarter.
In a separate report released this morning, the PMI reading showed that manufacturers saw the sharpest monthly rate of decline since June 2009 in October. The PMI fell to 47.4 in October from a downwardly revised 50.8 in September, hinting at an extremely weak start for the manufacturing sector into the fourth quarter.
With unemployment at a 17-year high and households worried about job security and finances, the pressure is rising on the government to ease its austerity drive and do more to boost growth amid fresh turmoil in the Eurozone, which is likely to create new risks.
US pre-market
US December futures are pointing to Wall Street opening in negative territory this afternoon. S&P 500 futures are currently down 1.7% to 1228.00 and Dow futures are 1.14% lower at 11,761.00.
Looking ahead to this afternoon the US is due to release construction spending data and ISM manufacturing and prices paid figures, both at 2pm (London time). This will be followed by total and domestic vehicle sales at 9pm (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 1 November 2011: 6.00am Update
Global markets retreated sharply overnight, as Italian and Spanish bonds fell amid concerns that European leaders will struggle to raise funds to contain the region’s debt crisis.
Reports from China suggesting that the country may not assist the European bailout triggered the concerns. Last week’s bailout package had been aided by news that China was ready to contribute. Elsewhere, the yen slumped after Japan intervened in the market.
Among the major averages, the Dow Jones Industrial Average shed 2.3% to end at 11,955. The S&P slumped 2.5% to close at 1253 and the Nasdaq declined 1.9% to finish at 2684. The losses in Europe were even worse as the CAC and DAX dropped over 3% each.
Asia & Australia
Across Asia, regional markets are weaker after China’s official ‘Manufacturing PMI’ index fell to 50.4 in October from the prior month’s reading of 51.2. This result was well below a median forecast of 51.8.
However, a consolation is the fact that the figure is still in expansionary territory (above 50). Concerns over Europe’s debt situation also continue to dampen sentiment. Japanese exporters received a short-lived boost yesterday on the back of a massive intervention by the government in the currency markets.
However, the effect has now waned as the Nikkei is weaker. The Nikkei is down 0.9%, the Hang Seng is 1.5% weaker and the Shanghai Composite is flat.
Australia's S&P/ASX 200 index is down 1.1% at 4251 after hitting a three-day low of 4234.7, with materials leading broad-based declines after steep falls in offshore markets and a weaker-than expected China Manufacturing PMI reading.
The RBA has cut interest rates by 0.25% to 4.5% as expected. Volumes are light because of Victoria's Melbourne Cup horse race holiday, and the market is being weighed down by renewed concern over Europe. Scepticism (about the European financial stability plan) is being priced into the European bond markets and this is affecting risk assets.
Commodity price weakness is weighing, with BHP Billiton down 2.3% and Rio Tinto lower by 3.4%. Banks are weaker between 1% and 2%. Consumer discretionary stocks are under pressure, with Harvey Norman, Myer and David Jones down significantly.
Europe
Turning to the European session, we are expecting a weak open, in line with weakness in the Asian region. On the economic front, traders will be looking out for Manufacturing PMI and Preliminary quarterly GDP data due out in the UK today.
Further developments regarding the bailout plan will be a key factor in today’s trading. Some investors may look to snap up financial stocks after yesterday’s sell off, but we feel the sceptics will continue to outweigh the optimists.
Commodities are likely to continue to struggle as spread betting investors flee risk assets following China’s weaker-than-expected Manufacturing PMI reading.
Ahead of the open we're calling the FTSE down 51 at 5493, the DAX down 65 at 6076 and the CAC down 29 at 3213.
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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"Greek PM Bailout Referendum Decision Shocks Spread Betting Markets" last update by AG, 01-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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