Spread Betting 24 Aug 2010
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For today's update see Spread Betting.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 24 August 2010: 11.30am Update
The FTSE opened sharply lower this morning, following dovish comments from newly appointed Bank of England member Martin Weale and weak overseas leads which eroded market sentiment and saw investors shun risky assets.
What little confidence investors received from the recent spate of M&A activity was taken away after Bank of England policy maker Martin Weale said that the UK economy faces a 'real risk' of falling back into recession.
In an interview with the London-based Times newspaper he was quoted as saying 'I think it would be foolish to say that there's no risk of [recession]', and that the Bank's latest forecast put a 'significant chance on the economy contracting over a four-quarter period'. [1]
According to Weale, unemployment is likely to rise in the UK and the private sector could face another liquidity crisis. However, he did say that fiscal tightening from the government is not likely to trigger a recession.
The FTSE was always going to struggle following such downbeat comments from a policy official. By 10.30am (London time) the FTSE 100 retreated 56.61 points (-1.09%) to 5178.23, while the FTSE 250 lost 90.54 points (-0.93%) to 9735.61.
Sterling fell 0.6% against the US Dollar to $1.5400, while the Yen soared 0.75% to a 15-year high against the US Dollar at ¥84.50 Yen.
Wall Street slipped in the last hour of trading last night, and Asian equity markets continued the downward trend to finish broadly lower this morning. The Nikkei finished at 8995.14, the lowest level in a year.
Copper retreated 0.81% to 3.2650 per pound, while Brent Crude fell 1.17% to $72.76 a barrel. Gold also stumbled, unable to benefit from its perceived safe-haven status, declining 0.59% to $1219.60 an ounce.
The drop in commodity prices sent miners broadly lower this morning. Rio Tinto was down 2.8%, while Xstrata and BHP dropped 2.66% and 1.45% respectively.
Vedanta Resources slumped 5.6% to 1923p after India rejected its proposal to mine bauxite in the Indian state of Orissa. The government may also revoke their permit to operate an existing aluminium refinery due to possible environmental violations which may potentially stall a project worth $8 billion.
Meanwhile, Chilean based copper miner Antofagasta reported a 91% jump in first-half profit today, but lowered their production forecast for the year. Copper output is expected to reach 530,000 metric tons, down from 543,000 metric tons forecasted in March. Shares in Antofagasta fell 2.53% to 1001p.
Homebuilder Persimmon managed to buck the negative trend and advanced 1.88% to 353.10p this morning. The company recorded first-half profits of £80.1 million, up from £9.8 million a year earlier. Headline revenue also increased 27% to £776.6 million.
Persimmon has attributed the robust results to rising prices and an improving housing market. This seems to contradict the current trend we are seeing in UK house prices, which are expected to decline for the remainder of the year. This may make it difficult for Persimmon to match its first-half results in the coming quarters.
This afternoon, investors will be keeping a close eye on the US existing home sales reported at 3pm (London time). According to Bloomberg, the median forecast predicts existing home sales to fall to 4.65 million in July, from 5.37 million the previous month. That equals a 13.4% drop in sales in July, compared to a 5.1% drop in June.
At the same time, the Richmond Fed Manufacturing Index will also be released. Economists are expecting the gauge to fall to a reading of 8 for August, down from a reading of 16 the prior month.
Source: [1] Reuters (24 August, 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 24 August 2010: 06.30am Update
On Wall Street overnight, US stocks finished in the red for the third-straight session as strong earnings and further M&A activity failed to offset ongoing concerns over the economic slowdown.
The market digested acquisition offers from the likes of HP and HSBC in London, with 3M also saying they were likely to spend US$2 billion on corporate activity before the year is over.
The tech-heavy NASDAQ was the worst performer, down 0.9% while the Dow Jones Industrial Average and S&P 500 both declined 0.4%.
Across Asia, regional spread betting markets are mixed this Tuesday following yet another set of weak leads from the US where investors continue to be concerned over the pace of economic growth.
As at 05:45, the Nikkei 225 is the worst performer, down 1.3% and hitting a fresh 15-month low as exporters were pounded by the Yen’s strength. Elsewhere, markets have turned lower with the Kospi and Hang Seng both down 0.2% and the Shanghai Composite firmer by 0.9%.
In Australia, the ASX 200 is 0.9% softer at 4390, off morning lows of 4378. Consumer staples, materials and financials are doing most of the damage, hampered by weak offshore leads and disappointing earnings reports. Political uncertainty continues to cloud the market, with few traders willing to put their hard-earned capital to work.
The lack of overall direction seen in Asia is paving the way for a negative start to trade in Europe, eroding much of yesterday's gains as a result. In light of these concerns over the US economy faltering, expect housing data later in the day to be closely watched whilst German GDP data will add to the fundamentals expected.
There's a relatively busy earnings calendar today too with highlights of Cairn, Wood Group, WPP and Antofagasta due out of London, whilst Burger King and Barnes & Noble are expected from the other side of the Atlantic.
As we've seen before, a positive corporate outlook and any buzz accompanying M&A chatter could see markets turn around but right now the outlook for the US is weighing.
Therefore ahead of the European market open we're calling the FTSE down 28 at 5307, the DAX down 20 at 5991 and the CAC down 20 at 3533.
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 24 Aug 2010" last update by AG, 24-Aug-2010
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