Spread Betting Markets Weaken on ECB Comments to Italy
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 5 September 2011: 11.00am Update
The gloomy atmosphere prompted by Friday's non-farms report in the US has continued into a new week, as UK markets continue to fall.
Concerns about the US economy are combining with a new tranche of bad news from Europe. There is also more bad news on the UK economy, as the services sector suffered a major drop in activity in August.
By 10.30am (London time), the FTSE 100 was down 2.05% at 5183.38, while the FTSE 250 lost 2.12% to 10160.76. In Europe, stock markets in Germany, Italy, France and Spain all fell by around 3%.
Eurozone worries resurface
As markets attempt to fill the time between last month's Jackson Hole speech and the Fed meeting later in September, investors have focused on the debt crisis in the Eurozone, which has continued to simmer all through August.
Markets dropped sharply on opening this morning, and staged only limited recoveries as financial spread betting investors abandoned risky assets and pushed gold and the US dollar higher. A lack of company news today has meant that there is little good news for markets to digest.
Greece and Italy jolt markets
The sudden departure from Athens of the representatives of the EU/IMF/Eurogroup troika has sent jitters through Europe, as fears intensify that Greece will fail to meet its targets for deficit reduction.
Greek media had reported that Prime Minister Papandreou and Finance Minister Venizelos had refused to make further budget cuts for the year, but Mr Venizelos continues to say that talks are proceeding well with the international authorities.
Privately, frustration in Brussels is increasing, as officials become exasperated with the apparent lack of progress in Athens at bringing national finances under control.
While the running sore in Greece continues, Italy is also providing cause for concern. Over the weekend, ECB president Jean-Claude Trichet issued a stern warning to Rome, saying that it needed to implement austerity measures or risk damaging already-fragile spread betting market confidence.
Although he did not say it explicitly, his speech reminded investors that the ECB had only consented to purchase Rome's debt in return for effective deficit-cutting measures by the Italian government.
However, it should be noted that a commitment to austerity is not necessarily the same as actual austerity. As Greece has shown, it is difficult to impose fiscal discipline if the populace refuses to accept it.
No good news likely from Germany
And finally, in Germany Chancellor Merkel has come under pressure following a defeat in regional elections. Her party, the Christian Democrats (CDU), saw its share of the vote in Mecklenburg-Western Pomerania fall from 28% to 23%, while the Social Democrats and Greens saw their shares of the vote increase.
The Eurozone crisis loomed large in the contest, as discontent among Germans continues to build.
There will be more surprises out of Germany this week, as the German Constitutional Court issues its ruling on the legality of the bailouts.
Even this body, which has cast itself as the defender of German national sovereignty, is unlikely to declare the bailouts completely illegal, but even a decision that German participation is impossible until treaty changes are invoked could have major consequences.
UK services growth slows
Back in the UK, there was more bad news on the UK economy, as the third and final PMI reading was released. This, for the services sector, is the most important one for the UK economy, and the Markit index gave no cause for celebration.
The sector slowed by the largest amount in ten years, with the headline index dropping to 51.1 for August from 55.4 in July.
Although the sector stayed above the dividing line of 50 that separates expansion from contraction, the fall was the second biggest on record. Markit said that there was little doubt that underlying growth in the sector had indeed weakened of late.
US markets closed
In the United States, markets will be closed for their Labor Day holiday, and so no economic news will be published today.
At midnight tonight (London time), the British Retail Consortium releases August sales figures. No growth is expected, following on from an increase of 0.6% in July.
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 Weaken on ECB Comments to Italy" last update by AG, 05-Sep-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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