Spread Betting Markets Lower on Chinese Reluctance to Invest in EFSF
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 31 October 2011: 11.00am Update
Fears that China is dragging its feet over participation in the latest Eurozone bailout plan hurt equity markets this morning, with shares in London falling as confidence among spread betting investors dissipated.
By 10.45am (London time), the FTSE 100 was down 1% at 5645.97, while the FTSE 250 had lost 1.18% to 10,646.15. European markets also lost ground, aping the moves seen in Asia overnight.
Eurozone optimism fades
Markets seem to have put last week’s euphoria firmly behind them, as stock indices retreated across the board this morning. The excitement that followed the Eurozone summit has definitely faded, as disenchantment returns.
What is bothering investors is the absence of real detail about the measures announced last week, with particular worry about whether China will make a meaningful contribution to the enlargement of the Eurozone rescue fund.
Over the weekend, the head of the fund, Klaus Regling, travelled to China to launch his sales pitch to Chinese mandarins, but left for Japan without making any discernible progress. China has vast reserves of foreign exchange, and has been looking to diversify its holdings away from the US dollar (in order to lessen its vulnerability to US economic policy moves).
However, Beijing warned that it was not going to act as the financial saviour of Europe, nor should it. Any sane person (one without an economics PhD) can see that it is illogical to ask China to prop up a continent whose unemployment benefits are higher than the average wage in China.
Continuing from Friday is a rising trend in ten-year bond yields for Italy and Spain, with Rome’s yield now at 6.12% and Madrid’s at 5.62%.
The news (or rather, lack of it) from China has put markets in risk-off mode, with the US dollar index rising as investors flock back to Treasuries in a bid to protect some of the gains made in recent weeks. Commodity prices are sharply lower, and this is hurting mining stocks. Vedanta, Xstrata, Rio Tinto and BHP Billiton are all down 4%.
Barclays sees profits increase
Banking stocks are also down, with Barclays falling into the red despite an interim update this morning. Adjusted pre-tax profits at the bank were up 18% to £5 billion for the first nine months of the year, but third-quarter earnings were down 20% from the previous three months.
Exposure to the sovereign debt of peripheral Eurozone states was cut by 31% to £8 billion, reducing the risk to the bank of a renewed crisis in the Eurozone. Barclays shares were down 2.3% at 196.6p, while Lloyds and RBS both slumped 4.7% this morning on heightened Eurozone concerns.
Homeserve shares slump
The company might describe itself as the ‘fifth emergency service’, but it looks as if home repair firm Homeserve might need emergency help itself. The company, which sells insurance and repair services, and is a member of the FTSE 250, saw its shares halve in early trading after it said that all sales and marketing activity had been suspended.
An independent investigation into the company’s activities found ‘processes that did not meet the company’s standards’. As a result all sales staff will be retrained. The share price recovered somewhat from its precipitate fall, but is still down 30% at 332.3p.
Japan takes action on the yen
The Japanese government waded into the forex market for the first time since August last night, in a bid to hold back the ongoing trend of yen strength. The yen dropped by around 5% against the US dollar, although it then rose again.
Tokyo has openly discussed the prospect of more intervention, so the move is not particularly surprising, but this latest gesture risks becoming yet another futile effort on the part of Japan, as the factors driving up the yen (the debt crisis in Europe and the possibility of slowing growth in the US and China) are beyond its ability to control.
US pre-market
Dow and S&P 500 futures are down 0.85% and 0.96% respectively, suggesting that Wall Street will follow global markets downward on opening this afternoon.
The Chicago PMI for October is published at 1.45pm (London time), followed by the Dallas Fed manufacturing index at 2.30pm (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 Markets Lower on Chinese Reluctance to Invest in EFSF" last update by AG, 31-Oct-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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