Spread Betting 15 Mar 2010
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For today's update see Spread Betting.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 15 March 2010
The FTSE was heading south this morning, with the heavyweight mining sector back in the red on fears that China will continue to tighten monetary policy in order to tame rising inflationary pressures.
'Given that China has been a powerhouse of economic activity since the global financial crisis, the fear is that withdrawal of stimulus prematurely will see a rapid fall in Chinese economic activity,' said Tim Schroeders of Pengana Capital. 'The concern is that tightening measures will choke demand.' [1]
Over the weekend China's Premier Wen Jiabao warned that the country's 'economy faces a complicated situation because of multiple uncertainties'. In addition he said that the global economy is at risk of a double-dip recession because of problems such as high unemployment which have yet to be solved.
Mr Jiabao also rebuffed calls for a stronger Yuan, saying he believes that the country's currency is not undervalued.
His opinion contrasts sharply with those of US lawmakers and economists, who are saying that China's reluctance to allow the Yuan to appreciate is threatening global competitiveness.
Stock market confidence was also crushed by Moody's Managing Director Pierre Cailleteau, who said the UK and US have moved 'substantially' closer to losing their AAA credit ratings.
Mr Cailleteau explained that the governments of the two economies must balance bringing down their debts without damaging growth. 'We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilising,' Cailleteau said.
'This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.' [2]
It doesn't stop there, unfortunately. In its quarterly bulletin, the Bank of England (BoE) warned of 'considerable uncertainty' over the domestic labour market. It said there is a risk of rising dole queues if 'the recovery in demand proves more sluggish than businesses have expected.'
Further job losses may lead households to increase their precautionary saving to insure against loss of work. That will mean households have less money available to spend on goods and services.
Also if some people suffer an extended period of unemployment, they may be unable to retain or acquire the skills sought by employers, limiting the recovery in output, it said. [3]
Over the weekend, policymaker Kate Barker warned that the UK economy may contract again for one quarter, but is unlikely to return to a recession.
There was also disappointing news for UK house prices today. According to The Royal Institute of Chartered Surveyors (RICS), British house prices grew at their slowest pace since August last month.
The RICS monthly house price balance dropped to +17 in February from a downwardly revised +31 in January.
'Most market indicators are still positive and consistent with further house price increases,' said Jeremy Leaf, a RICS spokesman.
'However, the magnitude of the gains going forward is likely to continue to ease reflecting the fact that the new supply coming onto the market is starting to outstrip fresh demand.' [4]
By around 9.45am, the FTSE 100 Index was trading 11.94 points (-0.21%) below its previous close at 5613.71 while the broader FTSE 250 was 46.85 points (-0.47%) lower at 9894.71.
Uncertainty over the Chinese economy, one of the world biggest consumers of metals, weighed on commodity prices and in turn the heavyweight mining sector.
The worst performing miners so far this morning were Xstrata and Lonmin, which fell 2.1% and 1.85% respectively. Meanwhile, Vedanta Resources is said to be planning to spin off its aluminium division. Its shares retreated 1.1% to 2717p.
Banks were mixed, meanwhile, with HSBC and Standard Chartered trading between 0.15% and 0.20% higher and Royal Bank of Scotland up 1.8% to 43.33p. In contrast, Barclays fell 0.57% to 349.85p and Lloyds Banking Group declined 1.6% to 57.51p.
According to the FT, Barclays Capital may become a partnership while the Independent has reported that Lloyds may spin off between £50 billion and £75 billion of assets into a real estate investment trust.
Looking ahead, investors should watch out for the New York Empire State manufacturing index, which is will be released at 12.30pm (London time).
The Treasury International Capital (TIC) flow data will follow at 1pm and the US industrial production and capacity utilisation figures are due shortly after at 1.15pm.
Source: [1] Bloomberg News (15 March 2010)
Source: [2] Bloomberg News (15 March 2010)
Source: [3] Press Association (15 March 2010)
Source: [4] Reuters News (15 March 2010)
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 15 Mar 2010" last update by AG, 15-Mar-2010
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