Sharp Drop in Chinese PMI Data Unsettles Spread Betting Markets
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 23 November 2011: 11.00am Update
The FTSE failed to make any gains this morning, as poor data from China hit mining stocks, and the lingering effect of yesterday's US GDP reading continued to make itself felt.
By 10.50am (London time), the FTSE 100 was down 0.74% at 5168.4, while the FTSE 250 had lost 0.65% to 9640.24. European markets were also lower, as Eurozone debt worries remained prevalent.
Weak China data rattles investors
Earlier in the week Chinese officials unsettled markets with their comments about the likelihood of a renewed global recession, and China-related fears have returned to stalk spread betting markets this morning.
The HSBC flash manufacturing PMI for November saw activity levels drop by the largest amount for 32 months. The index dropped from 51 to 48, with a slump in new orders outweighing an increase in exports.
This has heightened expectations that the Chinese government will act to loosen monetary policy, with bank reserve ratio cuts being the most likely course of action to start with.
As a result, the Aussie dollar is once again sharply lower this morning, down 1.2%, while mining shares are under heavy pressure as investors fret about the impact of lower Chinese growth on the revenues of large mining companies.
The FTSE 350 mining index is down 1.76%, while Rio Tinto and Vedanta have both shed more than 2%.
Brussels looks to beef up its powers
Brussels looks set to tighten its control over national budgets, including a rule that sovereign national parliaments must submit spending plans to the apparatchiks in the EU before their own parliaments.
In addition, EU commissars will be dispatched to national capitals to assess whether democratically-elected governments are complying with Brussels diktats, even if the country itself has not requested assistance.
There is a case to be made for collective efforts at prudent financing since (as Italy and Greece have so painfully demonstrated) one country can do serious damage to the entire Eurozone.
However, this does also raise worrying questions about the future of national sovereignty in the EU, and whether national electorates will allow supposedly independent nations to be run by bureaucrats.
Johnson Matthey expects good year
Johnson Matthey shareholders were cheered by news that the company had lifted its interim dividend by 20%, to 15p per share, following a good first half. Pre-tax profit was up 24% at £203 million, while revenue gained 29% to £5.9 billion.
The shares rose 2% to 1806p, helped along by the company's comment that it expects second-half revenues to be ahead of those for the first six months of its year.
Compass remains on track
Catering company Compass fell 1.5% to 551.5p as risk-averse sentiment gripped markets, despite the firm announcing that underlying pre-tax profit had risen above the £1 billion mark for the first time. Revenue was 9.4% higher at £15.83 billion, while the dividend per share for the full year was lifted from 17.5p to 19.3p.
One small black mark was found in operating margins, which were held back by the impact of the Japanese tsunami in March.
Compass remained reasonably upbeat about the future, saying that current performance pointed to continued good trading, but it did acknowledge some pressure on parts of the business was to be expected given the prevailing economic uncertainty.
US pre-market
Dow futures are down 129 points at present, while S&P 500 contracts are off by 12.3 points, suggesting Wall Street might resume its downtrend this afternoon.
US data is plentiful this afternoon, with October durable goods, personal income (both at 1.30pm) and the final reading of the November Michigan confidence index out at 2.55pm (all 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 23 November 2011: 5.00am Update
Global markets extended their losses overnight on concerns that European leaders are running out of options to solve the debt crisis. This sent French and Italian yields higher yet again.
In the US, market weakness was triggered by slower-than-expected GDP data in the third quarter. The revised number came in at 2% after an initial estimate of 2.5%. Losses were, however, pared on news that the Federal Reserve and International Monetary Fund may do more to bolster the economy.
Among the major averages, the Dow Jones Industrial Average lost 0.5% to end at 11,494. The S&P dropped 0.4% to 1188 and the Nasdaq was down 0.1% to close at 2521. S&P reaffirmed it would keep the US credit rating at AA+, after having stripped the government of its top AAA grade in August.
Asia & Australia
Across Asia, regional markets are weaker as commodities spread betting investors tread carefully on the back of escalating European bond yields. A lower revised US GDP number for the third quarter also put a dampener on sentiment. The revised number came in at 2% after an initial estimate of 2.5%.
The losses have accelerated during the Asian session on the back of weak economic data from China and reports that the Dexia bailout may be on the verge of collapse. China’s HSBC PMI manufacturing number came in at 48, hitting a 32-month low and below the desired minimum 50 expansionary level.
Around the region, the Shanghai Composite is down 0.5%, the Hang Seng is 1.9% lower and the Nikkei is 0.4% weaker.
Australia's S&P/ASX 200 is down 1.7% at 4063 on light volume before Thursday's US Thanksgiving holiday, after falling to 4062 in reaction to the Chinese HSBC PMI manufacturing number.
The market hit a fresh six-week low with the materials leading the decline. Iron ore miners are underperforming after JPMorgan lowered its iron ore price forecasts, with BHP Billiton down 2.9% and Rio Tinto down 1.8%. OneSteel has extended its losses, dropping over 6% after yesterday’s sharp sell-off.
Financial names are also weighing on the market, with major banks down between 2% and 2.5% on offshore peer weakness. Brambles is up 2.5%, enjoying a bounce after yesterday's sell-off. Energy stocks were outperforming earlier following a rise in crude oil prices, but have since turned lower along with other resource stocks.
Europe
European growth is also a major talking point at present as a result of the austerity measures governments are trying to put in place. European manufacturing PMI numbers will therefore be closely watched, with manufacturing expected to marginally deteriorate to 46.1 (from 46.5), re-enforcing the view that a deep recession is imminent and deflation is not far off either.
We will also get the findings of the European Commission’s report on major changes to the fiscal rules for EU members.
In the UK, traders will be looking out for MPC Meeting Minutes which are released 13 days after the Official Bank Rate is announced. Ahead of the European open we're calling the FTSE down 64 at 5143, the Dax down 63 at 5474 and the CAC down 41 at 2830.
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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"Sharp Drop in Chinese PMI Data Unsettles Spread Betting Markets" last update by AG, 23-Nov-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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