Shares Spread Betting: Greece to Miss Deficit Reduction Targets
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 3 October 2011: 11.00am Update
The new trading quarter got off to a very poor start, with the FTSE 100 quickly slipping below the 5000 level before clawing back some losses.
As ever, Greek worries are the main culprit, as Athens announced that it would fall short of its deficit reduction targets.
By 10.30am (London time), the FTSE 100 had fallen 1.96% to 5027.91, although it had managed to recover from a low of 4983. The FTSE 250 was 1.4% lower at 9681.62, helped by a positive UK manufacturing update.
Greece… again
Last week the shares spread betting market endured a choppy end to the month due to Greece worries, and today markets have fallen because of… Greece.
The beleaguered government in Athens was forced to confess that it would miss its deficit reduction targets, which means that the dispatch of the next tranche of bailout funds is even less likely than it was last week.
The deficit for 2011 is forecast to be around 8.5% of GDP, which is down from 10.5% of GDP last year, but short of the 7.6% target set by the EU and IMF. The worsening recession was blamed for the shortfall.
Finance minister Evangelos Venizelos is off to Luxembourg today, to meet with his Eurozone counterparts to assess what Greece needs to do in order to secure the next trance of funds.
Whatever politicians say, the Eurozone remains firmly in the world of (to quote Donald Rumsfeld) ‘known unknowns’; it is almost certain that Greece will default, but no-one is quite sure what happens next.
The solutions proposed for the Eurozone are becoming more and more outlandish, but the fundamental truth remains – Germans are becoming more and more opposed to paying out more to keep Greece and other nations solvent.
The sole hope for markets at the moment is that Germany will agree to keep sending money southward, but if Berlin suddenly decides enough is enough, then the unravelling of the Eurozone could take place quite quickly.
For now however, politicians continue to speak of their determination to hold everything together, but spread betting markets are becoming increasingly sceptical.
UK manufacturing posts surprise growth
There was some small good news on the British economy, as the UK’s manufacturing PMI moved back into expansion territory in September. The Markit/CIPS index rose from 49 to 51.1, defying economists who had forecast that it would fall to 48.5.
However, before we all get excited, Markit cautioned that the increase was driven by the fastest depletion of backlogs in two years, with the firm’s economist, Rob Dobson, saying that the figures suggested that the manufacturing sector’s contribution to the economic recovery would remain ‘moderate, at best’ for the rest of the year [1].
Manufacturers Inchcape and Devro both managed to push higher today, helped by the news, with Devro up 2% to 240p and Inchcape rising 1.2% to 283p.
Most FTSE 100 stocks down
Rising stocks were however few and far between in the FTSE 100, with only Randgold Resources, Fresnillo and United Utilities up by 10.15am (London time).
The first two are higher thanks to gains in gold and silver; these metals having sprung back to life this morning as the Greek news tempts some investors back into precious metals as an alternative to fiat currencies.
United Utilities, with its portfolio of consumer goods, is viewed as something of a ‘defensive’ share, since consumers are likely to keep buying its products even in a downturn, unlike luxury firms such as Burberry, which is down 5.3% at 1112p.
Banks and miners fell in tandem this morning, with Greece and general global growth worries to blame. Barclays (down 5%) and RBS (down 4%) were the biggest fallers among the major five banks, while among the miners Vedanta dropped 4% and Rio Tinto was 3% lower.
In Europe, shares of Belgian bank Dexia dived 14% after Moody’s said that it was putting the bank on review for a downgrade as a result of its exposure to Greece. French and Belgian ministers will meet for a tęte-ŕ-tęte over the future of the bank.
US pre-market
December Dow and S&P 500 futures are both down 0.4%, pointing to a weak opening for Wall Street this afternoon. The major event of the day, economically speaking, will be the September ISM manufacturing figures, with the US manufacturing sector forecast to continue expanding, although not by much. The reading is forecast to be 50.3 from 50.6 in August.
Source: [1] Reuters (3 October 2011)
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"Shares Spread Betting: Greece to Miss Deficit Reduction Targets" last update by AG, 03-Oct-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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