Indices Spread Betting Market Rallies on Eurozone Debt Crisis Plan Speculation
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 10 October 2011: 11.00am Update
The FTSE 100 extended its latest rally into a new week, helped in part by positive noises emanating from the Eurozone.
Promises of a new rescue plan buoyed sentiment, but this could turn ugly quite quickly if indices spread betting markets begin to doubt the resolve of politicians.
By 10.30am (London time), the FTSE 100 was up 0.7% at 5340.71, while the FTSE 250 gained 0.43% to 10,001.17. US dollar weakness helped other currencies, with the euro leaping 1.2% and the pound up 0.53%, as the after-effects of Friday's surprise non-farm payrolls news continued to be felt.
Franco-German rescue plan
It must be trying to be a government official in the Eurozone. You spend all weekend in meetings, and announce that you have come up with a plan, but markets refuse to get conspicuously excited.
Over the weekend, the leaders of the Franco-German axis met in Berlin and declared that, by the end of the month, they would reveal their plan to rescue Europe from the consequences of the single currency.
Chancellor Merkel and President Sarkozy added that they also planned to undertake a bank recapitalisation programme to help shore up the continent's financial sector.
The summit was long on promises, as many European summits are, but noticeably short of detail. Still, we only have until the G20 summit in Cannes at the end of October to wait for further news.
Divisions remain between Paris and Berlin over the use of the Eurozone rescue fund, the EFSF, with the French hoping to use it to recapitalise banks while the Germans want it kept as a last resort for embattled governments.
It is this gulf that makes me cynical about a plan. Talking about the existence of a plan is one thing, actually devising and then implementing one is quite another. The history of the Eurozone crisis thus far suggests that there is much work to do before Mr Sarkozy and Ms Merkel can say with confidence that they have a workable solution.
It has been obvious for some time that politicians are risking a greater crisis by not resolving the current problem.
Accountants Ernst & Young reminded everyone of this fact by noting that overall Eurozone GDP would fall by 2% next year and by an additional 1% in 2013 if there was no resolution to the crisis. E&Y said that bank lending was weakening, and that other economic indicators were already flashing red.
FTSE 100 gradually makes advance
The FTSE 100 got off to a slow start this morning, as caution persisted among financial spread betting investors.
Defensive stocks took the lead early on, but more buyers emerged for riskier shares as the morning progressed, with the mining sector gaining gradually during the session.
Among the miners, Anglo American, Lonmin and Rio Tinto led the way, although Antofagasta and Johnson Matthey remained in negative territory. In the banking sector, Barclays and Lloyds gained, but RBS and HSBC failed to rise.
Michael Page enjoys impressive performance in Asia
Recruitment firm Michael Page may have seen excellent growth in its Asian division and in the Europe/Middle East/Africa region, but its operations in Britain barely grew at all in the third quarter.
Gross profit overall was up 26.5%, at £142.7 million, with Asia up 44% but the UK only expanding by 0.3%. Michael Page added that uncertainty had increased in the short term, reducing earnings visibility. The shares dropped by 5% to 345p, having stood at 523p during late July.
US pre-market
Wall Street may have finished in the red on Friday, but futures are pointing to a solid start today. Dow futures are up 0.99% while those for the S&P 500 are 1.15% higher. It's Columbus Day in the US today, so while the stock exchange is open, no economic data is scheduled for publication.
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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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"Indices Spread Betting Market Rallies on Eurozone Debt Crisis Plan Speculation" last update by AG, 10-Oct-2011
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