Spread Betting 29 Sep 2010
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For today's update see Spread Betting.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 29 September 2010: 11.45am Update
The FSTE opened higher this morning after China's purchasing managers index and Japan's Tankan survey shined a positive light on Asia. Equities quickly lost traction and pared gains however, as growth concerns over the UK economy resurfaced.
In an address to the Hull and Humber Chamber of Commerce yesterday, external member of the Bank of England Adam Posen made his case that the central bank should act now to support the UK economic recovery.
Mr Posen's argument is based on the comparison of the US and the UK recovery in the 1930s and Japan in the 1990s and that in his opinion, the current recovery in the UK is following a similar pattern.
In that regard, he argues that: “under the present circumstances, sustained high inflation is not a threat, that persistent high unemployment and output gaps are the threat, and we should take further monetary action to sustain and promote recover.” [1]
He argues that failure to respond with action puts the economy at risk of falling into a prolonged period of stagnant growth which could in turn undermine the country's long-term stability and prosperity.
The case for further stimulus is compelling considering the slowdown in growth that is anticipated as a result of the government's drive to cut the fiscal deficit. In his maiden speech yesterday, new Labour leader Ed Milliband expressed his concern that a plan that does not include growth would mean there would be no credible plan for deficit reduction.
However, in my opinion, it still seems premature for the BoE to consider further monetary easing without concrete evidence that the UK economy is stalling. The BoE reported today that net lending to individuals rose by more than expected to £1.5 billion in August, an early indication that consumers may restart borrowing to fund purchases.
UK's main trading partner, Europe, has been showing signs of resilience despite being hit by sovereign debt concerns in recent months. Just today, European economic confidence unexpectedly improved in September to 103.2, the highest since January 2008.
Elsewhere in the spread betting markets, the Chinese growth engine looks to be on track, after the HSBC China PMI rose to a five-month high in September. Even the beleaguered Japanese economy showed signs of improvement after the quarterly Tankan large manufacturing index rose by more than expected.
Furthermore, additional monetary easing may send the signal that the UK economy is struggling, which could in itself create a self-fulfilling prophecy and weaken growth.
By 11.30am (London time) the FTSE 100 was down 16.76 points (-0.3%) to 5561.68 while the FTSE 250 had gained 16.59 points (+0.16%) to 10569.
Vedanta Resources lost 4.87% to 2151p this morning after it had to close its copper-smelting operation in India due to a breach of environmental standards. Meanwhile, BP rose 2.75% to 416.30p after the oil giant sold $3.5 billion in bonds overnight.
The majority of purchases came from US investors, which helped calm fears that BP's brand may have been tarnished in the US over the Gulf of Mexico oil spill.
Gold hit a fresh high this morning of $1313.80 an ounce, before settling back to $1309.77. Worries over currency devaluation have supported gold in recent weeks, and should continue to support gold prices going forward.
The comments from BoE's Adam Posen overnight has seen sterling underperform today, as the prospect of further quantitative easing has weakened the currency. GBP/USD was little changed at $1.5800 on a day when the US dollar was broadly weaker. EUR/USD gained 0.27% to 1.3615 after European economic confidence unexpectedly rose, while the Aussie dollar rose 0.35% to $0.9700 after HSBC's China PMI reached a five-month high.
Elsewhere in FX spread betting markets, the Australian dollar looks on track to reach an all-time high against its US counterpart as the expectation of further quantitative easing in the US is likely to weaken the US dollar in the coming months.
Source: [1] Bank of England website (28 September 2010).
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.
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 29 September 2010: 6.30am Update
In the US overnight, stocks finished near session highs as stronger-than-expected numbers from Walgreen, the largest US drug store, led a rally among consumer staples and healthcare names.
A weaker-than-anticipated consumer confidence reading helped fuel speculation that the Federal Reserve would engage in another round of quantitative easing, which is positive for equities.
The S&P 500 index was the top performer overnight, adding 0.5% while the NASDAQ and Dow Jones Industrial Average both rose 0.4%.
Across Asia, regional markets are higher this afternoon following the positive overnight leads. As at 06:00, the Hang Seng is the top performer, up 1.4%.
The Nikkei 225 is 1% firmer after this morning’s weaker-than-expected Tankan survey suggested the BoJ may discuss further moves to ease monetary policy. Elsewhere, the Shanghai Composite and Kospi are both up more than 0.5%.
In Australia, the ASX 200 is down 0.3% at 4658 having earlier traded as high as 4698. Gains for the day have been most notable across the materials, telecoms and industrial sectors with offsetting losses coming from information technology, consumer staples and financial sectors.
Turning to European financial spread betting markets, in the absence of any major new information, we're currently looking at a flat to slightly higher start to Wednesday's trade although there is a flurry of low level economic data expected in the hours ahead that could help shape direction.
Eurozone consumer confidence, UK consumer credit and US mortgage applications will provide three reasonable reference points over the economy, although the earnings calendar looks a little lighter. Highlights are set to include the Swedish listed clothing store H&M plus US discount chain Family Dollar, but otherwise there's little else of note due for release.
A degree of caution could well carry through into today's trade with dealers not wanting to get caught on the wrong side of any month-end position keeping but ahead of the open we're calling the FTSE up 5 at 5583, the DAX up 6 at 6282 and the CAC up 6 at 3768.
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.
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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"Spread Betting 29 Sep 2010" last update by AG, 29-Sep-2010
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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