Hang Seng Spreads Fall on Global Recession Fears
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 23 September 2011: 11.00am Update
A pledge of action by the G20 helped to lift the FTSE 100 for a time this morning, but the leading index proved unable to hold on to its gains, slipping into the red as the morning wore on.
By 11am (London time), the FTSE 100 was down 0.45% at 5019.09, and the FTSE 250 had lost 0.6% to 9827.54. European markets also began the day higher, but then slipped during the course of the morning.
Market tension eases, but nerves remain
Today is the quiet period following the storm. US markets remained firmly in the red overnight, although they managed to pull back from their heaviest losses. A small chink of light appeared towards the end of the session after the G20 pledged itself to the defence of the global financial system.
The world’s largest economies said that they would do all that is necessary to support growth in the economy, adding that central banks stood ready to provide liquidity.
This news, although it was long on generalities and short on specifics, has been sufficient to hold up UK markets this morning. Its most pronounced effect was in the financial sector, with the FTSE 100’s biggest gainers being amongst banks and insurers.
Lloyds, HSBC, Barclays and RBS were all up in shares spread betting this morning, although their advances pale into comparison with the magnitude of the falls yesterday. Hedge fund Man Group rose 1.7% to 224.9p, while insurance firm Admiral voyaged 1% higher to 1242p.
The financials might be enjoying some relief today, but the same cannot be said of the mining sector. Yesterday’s double-whammy of bad news from China and the Eurozone signals that global demand for raw materials is likely to slow, as Europe veers towards recession and Chinese tightening measures begin to take effect.
Raw material shares have failed to make any real recovery, with major names like Vedanta pushing 3% lower to 1083p (down 24% since Monday), Xstrata down 2.7% to 827.2p (down 20%) and Kazakhmys falling 3% to 821p (down 22%).
Centrica expands in the US
Even in these turbulent times, companies are still making acquisitions, which perhaps helps to underline how well-fortified they are with cash.
Centrica, which is universally loved among British householders for its control of the British Gas operation, is buying Texan energy retailer First Choice Power.
Centrica’s North American subsidiary is paying $270 million for the company, which provides power to more than 220,000 residential and commercial properties in the Lone Star state. Centrica shares rose 1.5% to 286.8p.
US pre-market
US futures are up, as is only to be expected following such a dramatic move lower yesterday. However, they have been trending lower all morning, indicating that nervousness still remains. Currently, Dow futures are up 0.5%, while those for the S&P 500 are 0.3% higher.
No US data is published this afternoon, so the focus will be on the IMF and G20 meetings in Washington over the weekend.
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 23 September 2011: 6.00am Update
In the US overnight, stocks slumped once again but finished just off their lows, as fears of recession gripped global markets following yesterday’s gloomy assessment of the US economy from the Federal Reserve.
The Dow Jones Industrial Average was the worst performer - down 3.5% - while the S&P 500 and NASDAQ slid 3.2% and 3.3% respectively.
Asia & Australia
Across Asia, regional markets are all lower following the terrible set of leads from overnight markets that saw participants running for the exit doors on fears of a global recession, following yesterday’s dire outlook from the US Federal Reserve.
With the Nikkei 225 shut for a public holiday, the Korean Kospi is the worst performer - down 4.4% - while the Shanghai Composite and Hang Seng are 0.9% and 1.6% lower respectively.
In Australia, the ASX 200 is 0.8% lower at 3932 having earlier traded to lows of 3882. The big talking point was the sharp move higher in the market around lunchtime with the index threatening not just to come off the lows, but to actually go positive.
The question traders had been asking themselves was ‘is this genuine buying or merely short covering after a torrid week’?
There are a lot of value-minded investors who really feel that the market has discounted a lot of bad news and is ready to push towards 4000 in the short term. And rightly so.
If you believe valuations at present the market is incredible buying. However, we feel the global market has moved on from worrying about a US and European recession, to now a global recession, with the recent fall in copper testament to that.
Quote of the day
The most interesting comment of the day has to be that of ECB member Mr Knot (the head of Dutch central bank) who said a Greek default cannot be excluded. This is interesting because we feel this is the start of a communication exercise to let the spread betting market gradually price in a ‘soft default’.
Not until the EFSF has been fully set up and voted will there be enough funds to recapitalise the European banks, but the process of allowing fund managers and traders to position themselves can take place well before the event.
Greece will eventually default - it is broke and has an uncompetitive economy - but the way markets react to this is key and it looks like we are in the early stages of Greece’s much anticipated default.
There is disappointment that the Fed didn’t deliver the “home run” that the market had been hoping for. Instead, highlighting the significant downside risks to the US and global economies certainly spooked the market.
On top of that we had Chinese PMI data (or at least HSBC’s version of it) showing contractionary levels of activity, poor manufacturing data out of the strongest European nations in Germany and France and, perhaps most worryingly, anecdotal evidence of coal and iron ore shipments destined for Asia being delayed due to slowing demand.
So is it all that bad? Probably not. It’s always darkest before the dawn and if there’s one thing we all should have learnt from recent years, it’s that markets get overly hysterical and feed on their own fear, accentuating market plunges like the one we witnessed last night.
Unfortunately for the commodities spread betting market, a lack of political leadership seems to be one of the biggest reasons why we can’t make any meaningful inroads into solving this crisis.
Europe
Over in Europe, government heads, Euro Finance Ministers and bodies like the IMF are blatantly behind the curve and very slow to react. And when they do it’s normally with nothing more than jawboning.
Similarly in the US, Washington is stuck in political gridlock with both parties posturing ahead of next year’s Presidential election. The Republicans in particular seem hell-bent on not showing any flexibility when it comes to raising taxes, making it almost impossible to make any serious inroads into the US’s deficit problems.
Ahead of the open we're calling the FTSE up 37 at 5078, the DAX up 51 at 5215 and the CAC up 35 at 2816.
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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"Hang Seng Spreads Fall on Global Recession Fears" last update by AG, 23-Sep-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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