Indices Spread Betting Markets Tumble as Fed Stops Short of More QE
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 22 September 2011: 11.00am Update
The FTSE 100 dropped sharply this morning, as traders digested the Fed announcement released last night.
The lack of an explicit commitment to more QE has knocked risk appetite, with the US dollar climbing as a result as indices spread betting investors flock to US Treasury bonds.
By 10.30am (London time), the FTSE 100 had fallen 4.3% to 5062.61, with all of its constituent shares in the red, while the FTSE 250 had lost 3.2% to 9938.53. Similar declines were seen in the German, French, Italian and Spanish indices.
Ben Bernanke no longer the market's darling
Markets have finally fallen out of love with Ben Bernanke. Their whirlwind romance began back in 2008, when the world's most important central banker stepped in with what would become the first round of quantitative easing (QE). The relationship cooled slightly last year, but revived when 'Helicopter Ben' launched QE2.
Now it has come to an end. Ben and his merry band of policymakers issued their latest decision on the US economy last night, and did as was expected; they launched 'Operation Twist', the purchase of long-dated bonds and the sale of short-dated ones.
As already noted, this policy had been widely hinted at in the press, but many market participants had persisted in a belief that Mr Bernanke would launch 'QE3' instead, actively supporting the economy through asset purchases.
US markets slumped following the announcement, as investors realised no such operation was on the cards, and the declines have been replicated in London this morning.
Miners & banks slump
Mining shares are helping to push the leading index down, as worries about global growth are compounded by a weak manufacturing PMI reading from China.
The biggest faller is copper miner Kazakhmys, which is down 9.5% to 873p as the price of its main product slumps. Close behind are Rio Tinto, Vedanta and Xstrata, which are all 8.5% lower.
The lack of explicit central bank support means that banks are suffering as well, with news from Europe compounding their woes. On average, the big five UK banks are down 4.3%, with Barclays leading the way with a 5.3% drop to 145p.
But easyJet ascends on profit upgrade
The fabled 'sea of red' may have been clearly in evidence this morning, but budget airline easyjet managed not just to hold its ground but actually soar. The orange-clad airline lifted its full-year profit guidance, sending its shares 6.8% higher, to 333.2p.
Pre-tax profit for the full-year is now forecast to be £240-250 million, as opposed to a previous estimate of £200-230 million. A one-off dividend is also expected, of around 35p per share, raising the full-year payout to 44p per share.
easyJet's news managed to keep fellow budget airline Flybe in positive territory, up 0.5% at 111.5p, although this airline's shares have dived 67% since it listed late last year.
Eurozone close to the edge
As if there wasn't enough to worry about this morning, the Eurozone is providing something extra for everyone to fret over.
A public transport strike has begun in Greece, with a mass protest of public sector workers planned for later today. This comes as Athens pledges to increase its austerity measures in order to comply with the terms of the bailout agreement.
The government might agree to it, but I wonder whether ordinary Greek citizens will allow themselves to endure yet more hardship.
Meanwhile, a set of PMI data showed that a contraction was underway in the Eurozone. Indices for services, manufacturing and the overall economy all shrank during September, moving below the figure of 50 that marks expansion from contraction.
The EU has already warned that economic growth will be virtually non-existent in the second half of 2011, and today's data has added strength to that prediction.
Combine this with the still-unresolved Eurozone crisis, and the outlook for Europe (and indeed the rest of the world) looks quite bleak.
US pre-market
US futures point to yet more losses. Dow futures are down 1.5%, while those for the S&P 500 have also dropped 1.5%.
Weekly jobless claims are published at 1.30pm, followed at 3pm (London time) by US leading indicators data for August.
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 22 September 2011: 6.00am Update
In the US overnight, the major indices finished on their lows of the session following the release of the FOMC statement in the last few hours of trade.
As expected, the Federal Reserve announced it would spend US$400 billion to rebalance its $2.87 trillion portfolio by selling short-term notes and using the funds to buy longer-dated treasuries.
However, spread betting investors reacted most to the Fed’s grim outlook. ‘Recent indicators point to continuing weakness in overall labour market conditions, and the unemployment rate remains elevated,’ it said in a statement. ‘There are significant downside risks to the economic outlook, including strains in global financial markets.’
The S&P 500 was the worst performer - down 2.9% - while the Dow Jones Industrial Average and NASDAQ were 2.5% and 2% weaker respectively.
Asia & Australia
Across Asia, regional markets are all lower this Thursday following the heavy selling on Wall Street in response to the FOMC’s operation twist, and their downbeat economic outlook. The Hang Seng is the worst performer – down - 4.1% while the Nikkei 225, Shanghai Composite and Kospi are all down between 1.7% and 3.4%.
In Australia, the ASX 200 is currently 2.6% weaker at 3967, just off its earlier session lows of 3959. After the late US session sell off stemming from the Fed’s bleak outlook for the US economy, today was always going to be a tough one for the Australian market.
Losses for the day are broad-based, with the heavyweight materials, energy and financial sectors all getting crushed between 2.6% and 4.2%.
Markets may have been priming themselves for some underwhelming stimulus measures from the Fed last night. However, even the selling we'd seen ahead of these measures wasn't sufficient to account for either their subtle nature or the accompanying concerns over the health of the global economy.
Europe
As a result, Asian markets have tumbled during the session so far and the expectation is that Europe will open significantly lower too.
Clearly the cautious tone is going to do little to help prop up an already-jittery market and with a relatively thin covering of fundamentals due during Thursday's trade, once again the risk has to be that sentiment will be the key drive. As a result there could still be more to come on the downside.
There's Eurozone PMI and US house price data to come, although earnings calendars are looking a little more substantial with Tui Travel and United Utilities amongst highlights in London, plus FedEx - a useful barometer of global business health - and Nike reporting on Wall Street.
Overall, however, there seems to be little to encourage more risk taking for now, though any news of substance regarding the Eurozone crisis could help rectify this situation.
Ahead of the open we're calling the FTSE down 148 at 5140, the DAX down 157 at 5276 and the CAC down 87 at 2848.
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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"Indices Spread Betting Markets Tumble as Fed Stops Short of More QE" last update by AG, 22-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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