Lloyds Recovers From Eurozone Crisis Induced Losses
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 12 September 2011: 11.00am Update
The Eurozone crisis remained centre-stage on Monday, as markets took fright on news that Germany was making plans for the possibility of a Greek default.
In the UK, the banking sector came under pressure following the release of the banking commission report, which recommended the separation of retail and investment banking.
By 10.30am (London time), the FTSE 100 had dropped by 1.6% to 5131.64, while the FTSE 250 had lost 1.4% to 10,005.20. European markets were more heavily affected, with Germany, France, Spain and Italy all down 3%.
Spread Betting Markets Hit by Eurozone Woes
Rumours had been widespread on Friday that Greece would finally throw in the towel and default over the weekend.
In the event, nothing of the sort occurred, but many are coming to the conclusion that a default is only a matter of time.
For over a year now, EU officials have said that Greece would not default, but news that Germany has begun preparing emergency plans for just such an event has prompted a return of risk aversion.
German officials are working out how to support their country's banks in the event of a default, and the German economy minister, Philipp Roesler, said that a default for Greece could not be ruled out.
It hardly needs repeating, but there is major contagion risk here, with the other dominos in the system, i.e. Portugal, Spain and Italy, following on very quickly if the Greek tragedy finally ends in default.
European banks suffered heavily this morning as a result of Greek worries, with financial companies in France, Germany, Italy and Belgium dropping back as the consequences of a Greek default became clear.
French banks also fell as a result of rumours of an impending downgrade of the sector by Moody's.
The agency has already placed Societe Generale, BNP and Credit Agricole on review for a downgrade, with Societe Generale's rating possibly being cut by two notches and the others due for a one notch cut.
France remains acutely sensitive to the subject of ratings, since it, and everyone else, is conscious of the fact that the country is a major contributor to the Eurozone rescue fund. If France's own AAA rating goes, then almost the entire burden of the rescue fund falls on Germany alone.
ICB Vickers Report Emerges
UK banks were in focus this morning, as the Independent Commission on Banking issued its full report on the sector.
The report came out as expected, recommending the ring-fencing of retail banking from investment banking operations.
The ring-fenced operation must have its own board of directors, although the commission did not change the stipulation that equity capital must be equivalent to 10% of risk-weighted assets.
Some flexibility in the ring-fencing is permitted, giving the heavyweight banks some room for manoeuvre.
Bank shares suffered heavily in opening trading, but this was also due to the Eurozone turmoil, and losses were pared as the morning went on. Indeed both Lloyds and RBS moved into positive territory, up 1%, while Barclays and HSBC lagged behind with falls of 1.5% and 1.2% respectively.
Primark Remains Popular
Associated British Foods was the sole FTSE 100 company providing any updates of note this morning.
The group said that sales at Primark remained strong, with like-for-like sales growth for the full year expected to be 3%, although operating margins are expected to be lower due to increased discounting.
However, the shares suffered from the prevailing market malaise, and were down 1.8% at 1051p.
US Pre-Market
UK shares may have recovered some ground, but US markets look set to continue Friday's falls this afternoon.
December futures for the Dow and S&P 500 are both 1.5% lower. No US economic data is published today, but Dallas Fed president Richard Fisher will give a speech at 9pm (London time).
Mr Fisher is noted as one of the hawks on the Federal Reserve board. Any signs that he is softening on his opposition to more stimulus will be eagerly seized upon by those hoping for more action from the Fed.
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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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"Lloyds Recovers From Eurozone Crisis Induced Losses" last update by AG, 12-Sep-2011
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