Shares Spread Betting Markets Fall as S&P Puts Eurozone on Negative Watch
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 6 December 2011: 11.00am Update
An unprecedented warning by ratings agency Standard and Poor's late last night sent financial spread betting markets lower as the agency announced it had placed 15 Eurozone countries on review, sparking fears of a mass downgrade.
By 10.30am (London time) the FTSE 100 had pared its early morning losses and was flat at 5568.60, while the broader FTSE 250 was 0.57% lower at 10,309.50. In continental Europe the German DAX was down 0.75%, while the French CAC 40 was 0.13% lower.
Standard & Poor's strikes again
Ratings agency Standard & Poor's announced late last night that had placed 15 of the 17 eurozone countries, including Germany and France, on review for a possible downgrade within 90 days. However it said this would depend on the outcome of Friday's summit, if EU leaders fail to deliver a convincing agreement on how to solve the region's debt crisis.
Standard & Poor's said ratings could be lowered by one notch for Austria, Belgium, Finland, Germany, the Netherlands and Luxembourg, and by up to two notches for the remaining nine placed under review, including the current triple-A rated France.
Meanwhile Cyprus was already on downgrade watch and Greece already has a 'junk' CC-rating. Following the announcement by S&P, French finance minister Francois Baroin said in retaliation that France will not plan to expand the austerity measures it has already announced.
The warning dampened initial optimism of a Franco-German agreement, where the two nations' leaders had hoped to put before other member states on Friday a plan which could hopefully stem the two-year long Eurozone crisis.
French president Nicolas Sarkozy and German chancellor Angela Merkel told reporters that their plan included automatic penalties for states that fail to keep deficits under control, an early launch of a permanent bailout fund for euro states in distress, and a treaty change to be agreed in March.
The holiday period fails to lure in shoppers
Retailers last month suffered their biggest annual fall in sales since May after widespread discounts from retailers failed to lure in shoppers. Retail sales on a like-for-like basis were 1.6% lower than a year ago, after a 0.6% fall last October.
Total retail sales also showed the weakest annual growth for six months as sales grew by just 0.7%, down from a 1.5% annual rise last October. Broken down, data showed that food sales were up 1.5% between September and November compared to the same period in 2010, but non-food sales were down 2.1%.
Despite high levels of discounting from stores, consumers have been reining in spending due to a combination of below-inflation pay rises, higher taxes, rising unemployment and low confidence.
Wolseley profits
The world's biggest building supplies company announced a rise in profit during first-quarter trading, but warned that it will remain vigilant on costs due to uncertainty over the economic outlook. It also warned that conditions could get tougher within the coming months.
The company said underlying operating profit rose 16% to £185 million in the three months to 31 October, while overall revenue was up 5% to £3.64 billion. The firm attributed the rise in profit and revenue to strong growth across its US businesses, which offset slower growth in its European businesses.
Revenue in the US alone rose 10% compared with a 3% decline in revenue during the first quarter in the UK. Shares in Wolseley were up almost 2% this morning at 1939p.
US pre-market
For the time being Wall Street looks as though it is set to open flat, with US futures 0.02% higher this morning. Dow contracts are 0.03% up at 12,070 while S&P 500 futures are at 1255.30.
On the economic data front, it's a fairly quiet day from the US with only the economic optimism reading for December released, at 3pm (London time).
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 6 December 2011: 5.00am Update
US markets gave up most of their early gains after the Financial Times reported that S&P may strip Germany and France of their AAA credit ratings, with all 17 euro-nations on ratings watch.
Early advances had been triggered by news that German Chancellor Angela Merkel and French President Nicolas Sarkozy pushed for a rewrite of the European Union’s governing rules to tighten economic cooperation. Also lifting sentiment was a drop in Italian borrowing costs following new austerity measures by the Italian government.
Among the major averages, the Dow Jones Industrial Average climbed 0.7% to 12,098. The S&P tacked on 1% to 1257, while the NASDAQ advanced 1.1% to close at 2656. There was also some disappointing economic data out of the US, with a weaker-than-expected ISM non-manufacturing PMI number.
Asia
Across Asia, regional markets are weaker after S&P placed most of the Eurozone sovereign credit ratings on negative review. After having seen a big improvement in sentiment over the past week or so, this piece of news saw shares spread betting markets take a big step backwards.
The overnight session was looking solid on news that German Chancellor Angela Merkel and French President Nicolas Sarkozy pushed for a rewrite of the European Union’s governing rules to tighten economic cooperation.
Markets, however, lost significant ground immediately after the S&P ratings changes news surfaced.
The losses have accelerated into the Asian session with the Hang Seng down 1.4%, the Nikkei 0.8% lower, the ASX 200 falling 1% and the Shanghai Composite shedding 0.6%. In light of the weakness we are seeing in the Asian region, US and European markets are pointing towards losses at the open.
Australia
The Aussie market is down 1% at 4275 in cautious trade, following S&P putting Eurozone sovereign credit ratings on negative review. With Asian spread betting markets having anticipated overnight strength on Wall Street, and US stock index futures weakening slightly on Eurozone rating fears, the Australian market has been unable to extend its rally.
The RBA’s decision to cut interest rates by 0.25% has had a muted response from the Aussie market. Investors are taking a slightly cautious view in light of S&P's warning on European credit ratings.
The materials sector is leading the decline, with Newcrest Mining down 4% after being downgraded to buy from hold by Deutsche Bank. The energy sector is also struggling, with Woodside Petroleum down 1.8%. Telecoms are outperforming, with Telstra up 0.3%.
Europe
It is still very much a headline risk market after S&P’s warning threw a spanner in the works, undoing all the hard work done by the bulls over the past week. The positive momentum we have seen in markets recently reflects that investors are happy with the progress they have seen in Europe.
Leaders are said to have agreed on a plan to impose a stronger fiscal union. It is also encouraging to see them work this quickly to come up with a solution. Some of the issues agreed upon include automatic sanctions to help enforce fiscal discipline and no further private-sector participation in future bailouts.
Ahead of the EU summit at the end of the week, markets seem to have started pricing in a comprehensive solution. As a result, some analysts are beginning to think the summit will fall short of conclusively paving the way out of the sovereign debt crisis, but it might deliver just enough to keep the ’Christmas rally‘ in risk assets and risk currencies rolling along into 2012.
Ahead of the European open we're calling the FTSE down 42 at 5526, the DAX down 41 at 6065 and the CAC down 17 at 3184.
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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"Shares Spread Betting Markets Fall as S&P Puts Eurozone on Negative Watch" last update by AG, 06-Dec-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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