Shares Spread Betting Markets Plunge on Concerns Over US Economy
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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 August 2011: 10.30am Update
UK markets continued to decline, following heavy falls last night on US exchanges and in Asia, as fears about a second recession in the US and an intensifying Eurozone crisis prompted investors to drop risky assets.
Meanwhile, gold continues to race away, hitting a high of $1672 an ounce.
By 10.20am (London time), the FTSE 100 was down 1.18% at 5650.72, while the FTSE 250 had dropped 0.95% to 11083.01. The small-cap FTSE AIM all-share index fell 1.3% to 836.7.
US ratings
As the world continues to recover from the US debt ceiling kafuffle, the ratings agencies have begun to issue their pronouncements on how they view US finances.
Fitch, which has been the most gentle of the three main agencies, reaffirmed its commitment to the US government’s AAA rating, saying that the risk of default was extremely low and that there was now an obligation in Washington to do the right thing.
Moody’s raised the stakes by assigning a negative outlook to the rating, citing the risk of deteriorating fiscal discipline, with a failure to adopt austerity measures and putting the financial health of the nation at risk.
Markets now await to see whether S&P will trump its neighbours by downgrading the US to AA. The agency had previously said that $4 trillion of cuts would be needed, and the current deal falls short of that target.
It will be interesting to see whether S&P wants to risk the wrath of US politicians by going through with its threat, and of even greater fascination will be the impact on global markets.
However, one agency has already stolen S&P’s thunder; China’s Dagong agency has downgraded the US (again), moving the world’s largest economy from A+ to A, with a negative outlook. The agency added that QE3 was now highly likely, which would ‘throw the world economy into an overall crisis’. [1]
Standard Chartered has good first half
Standard Chartered was an island of calm amid the storm this morning, as the bank, which is focused on emerging markets, reported an increase of 17% in first-half pre-tax profit.
Earnings were $3.64 billion, with growth seen in all areas except for India. The dividend was lifted by 10%, to 24.75 cents per share. Like HSBC, Standard Chartered will be cutting back employees in its Western operations, but will be expanding headcount in Asia.
Standard Chartered shares rose 1.8% to 1582.5p. The rest of the banking sector was broadly lower, with Lloyds, RBS and HSBC all down, although Barclays rose as sentiment towards the bank improved following yesterday’s results.
But Greek woes hit SocGen
In Europe however, spread betting investors reacted to news of a profit warning from French bank Societe Generale by selling their shares en masse. Shares in the bank were suspended from trading after slumping 6%, as the bank said it may well miss its 2012 earnings target due to writedowns on Greek government debt.
Eurozone crisis intensifies again
As key Spanish and Italian bond yields remain perilously close to the 7% level, politicians in Europe are playing catch-up with a crisis that once again seems to have escaped their control.
Spanish Prime Minister Mr Zapatero has had to pack away his bucket and spade for now, and Italian leader Silvio Berlusconi has announced that he will address both houses of the Italian parliament later today.
Both Mr Berlusconi and his finance minister, Giulio Tremonti, have come under pressure lately, over concerns that the most recent package of austerity measures does not go far enough in tackling Italy’s financial problems.
US pre-market
After yesterday’s falls on US markets, September futures are indicating that Wall Street may mount a modest recovery this afternoon, with Dow futures up 0.5% and those for the S&P up 0.6%.
At 1.15pm (London time), the July ADP employment reading will be published, with 100,000 jobs predicted to have been added. Although volatile, the ADP number is a key precursor of Friday’s non-farm payrolls news.
At 3pm (London time), June factory orders are released (expected growth: -0.8%), together with the July non-manufacturing index (expected reading: 53.5).
Source: [1] Dagong Credit Agency (03 August 2011)
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 3 August 2011: 5.45am Update
Stocks plunged in the US overnight, falling for a seventh straight session.
This happened as participants became more worried about the state of the US economy following a surprise drop in consumer spending. Bond yields in Spain and Italy also soared to record highs as traders worried about the size of the European Financial Stability Facility.
The NASDAQ was the weakest performer - down 2.8% - while the Dow Jones Industrial Average and S&P 500 lost 2.2% and 2.6% respectively.
Asia & Australia
Across Asia, regional markets are mostly lower following the very heavy falls in the US overnight as participants worry about the state of economic growth in the US.
The Kospi is the worst performer - down 2.8% - while the Hang Seng and Nikkei 225 are down 1.9% and 2.1% respectively. The Shanghai Composite is beating to its own drum once again, currently up 0.1%.
In Australia, the ASX 200 is currently 2.1% weaker at 4342, having earlier traded down to a low of 4326.
Equity markets are being smashed at the moment as shares spread betting investors continue to bail out of risk assets, fretting over the woeful state of the US economy and the apparent lack of a coordinated plan to rectify its many structural problems.
The Australian market’s losses are both heavy and broad-based, with the consumer discretionary, materials, energy, industrials and financial sectors all seeing declines of more than 2%. The benchmark index is now trading at its lowest levels in nearly 12 months.
The US agreement
Equity markets are thundering lower after President Obama signed into law the revisions to the debt ceiling and spending cuts, as traders globally took flight on fears that this could signal the start of another recession.
With the US economy still incredibly fragile, the compromise that was reached seems unlikely to provide much new stimulus, and if the US flounders then, arguably, other nations will struggle too.
There's still the question mark hanging over whether this will result in the US losing its prized AAA credit rating from the Western agencies (Dagong has once again cut its own assessment). To add to all of this, questions are being asked over the sovereign debt situation in Italy and Spain after bond yields surged to record highs yesterday.
It's all pointing towards a solid down-trend and despite yesterday's losses in Europe, the collapse on Wall Street and subsequent rout in Asian markets are set to keep the bears in play. There’s no sign that the bargain hunters are going to start moving - at least not just yet.
Now that the US hasn't defaulted the attention might swing back to the finer points, but each piece of data that falls short is likely to hit markets again, with Friday's non-farm payrolls being the next major point.
Europe
Ahead of this, today brings Eurozone retail sales, UK services PMI, plus the ADP survey and factory order data out of the US, whilst earnings remain upbeat too. Standard Chartered, UniCredit and Societe Generale will ensure the financial sector remains in focus, whilst a handful of US retailers are also posting sales updates for July.
To put all of this into perspective, the FTSE is now trading at levels not seen since the Japanese tsunami and earthquake. Ahead of the open we're calling the FTSE down 76 at 5642, the DAX down 93 at 6704 and the CAC down 43 at 3480.
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 Plunge on Concerns Over US Economy" last update by AG, 03-Aug-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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