Stocks Lifted by Reports of China Buying Into Italian Bonds
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 13 September 2011: 11.00am Update
Markets remained anxious today over the increasing likelihood of a Greek default, despite German chancellor Angela Merkel announcing that she will not allow for an ‘uncontrolled insolvency’ of the Mediterranean nation.
Early this morning spread betting markets saw a short-lived, tentative rally which was triggered by hopes that China would buy Italian debt.
By 10am (London time), the FTSE 100 had ended its morning rally and dropped by 0.5% to 5103.39, while the FTSE 250 was flat at 9982.42.
European markets were all marginally lower, with the CAC 40 down over 1% as its banks struggled to shake off wariness over their sovereign debt exposure.
Merkel Will Not Allow an ‘Uncontrolled’ Greek default
German Chancellor Angela Merkel announced this morning that she will not allow Greece to go into ‘uncontrolled insolvency’ because of the risk of contagion for other Eurozone countries.
Her comments came after news that Berlin started to prepare for a Greek default and is working to seclude Athens from the rest of the Eurozone.
She said her top priority is to avoid an uncontrolled insolvency in order to avoid a domino effect throughout Europe. Her remarks rejected calls by members of her coalition to consider allowing Greece’s exit from the currency union.
Today, Greece resumed suspended talks with global lenders after announcing a new real-estate tax over the weekend in an attempt to increase its austerity measures, in order to receive the next tranche of financial aid.
The rescue package has been put in doubt by Greece's repeated missing of fiscal targets agreed with Troika leaders, plus uncertainty over the scale of private sector participation in a bond swap and debt rollover.
The risk of contagion beyond Greek borders and fear of a default pushed sovereign credit-default swap prices to record highs across the Eurozone yesterday. This morning, the nation’s ten-year bond yield rose to 25.01%, while one-year bond yields surged to a record high of 119.5%.
Italy calls on China for help
Italy has asked China to buy ‘significant’ amounts of Italian debt as the Eurozone’s third-largest economy struggles to convince markets it can manage its debt load.
The call comes after China has repeatedly voiced support for the single currency area in the past. The news provided the shares spread betting markets a short-lived boost on the prospects of a cash injection for the country amid a deepening debt crisis in the Eurozone.
An Italian auction of long-term debt due later today of nearly €7 billion by Rome could show if investors have found any reassurance from the reports that China might offer financial support to Italy.
Italy’s deficit-cutting measures are expected to be approved by parliament this week, but there are widespread fears they could further slow its already fragile growth.
Italy’s debt crisis has forced the government to consider possible sales of strategic stakes in companies such as Enel, the Italian power utility, and Eni, the oil and gas multinational.
Market speculation is rapidly growing that Moody's ratings agency will downgrade Italy's sovereign debt rating this week.
UK inflation picks up
Data released this morning showed that UK inflation accelerated as expected in August, driven predominantly by increases in clothing, footwear, furniture and household goods.
Consumer prices rose 0.6% last month, taking the annual inflation rate up to 4.5% from 4.4% in July. The retail price index, on the other hand, picked up more than expected to 5.2%, versus a forecast of 5.1%.
Separate data showed the goods trade deficit with the rest of the world widened unexpectedly to £8.92 billion in July, against forecasts for a modest narrowing to £8.50 billion.
US pre-market open
After a quiet day for economic news yesterday, today will see the release of the US import price index at 1.30pm (London time) and the economic optimism index at 3pm (London time).
By 10am (London time) US September futures were mixed with the Dow 1.27% lower at 10,921.00 and the S&P 500 up 0.44% at 1168.30.
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 13 September 2011: 6.00am Update
In the US overnight, stocks rallied hard in the last hour of trade to erase the session’s losses.
This occurred following reports in the Financial Times that suggested China has been in discussion to purchase Italian bonds.
Earlier, continuing concerns over the Eurozone debt crisis had seen markets significantly lower.
The tech-heavy NASDAQ was the best performer, rising 1.1%, while the Dow Jones Industrial Average and S&P 500 added 0.6% and 0.7%.
Asia & Australia
Across Asia, regional markets are mixed in thin trade after a late rally on Wall Street saw US indices finish in positive territory, having been down significantly lower early.
With the Hang Seng and Kospi closed for public holidays, the Nikkei 225 is 0.7% firmer while the Shanghai Composite is down 1.4%, after being closed yesterday.
In Australia, the Australia 200 is currently 0.9% firmer at 4077, well off its earlier highs of 4094.
With overnight US markets rebounding from heavy falls late in the session on speculation the Chinese may be looking at buying Italian bonds, the Australian market was always going to recoup some of yesterday’s losses.
Gains on the session are relatively broad-based, with the energy, materials, consumer discretionary and financial sectors all seeing gains between 0.6% and 2.3%.
Looking ahead
With equity markets recovering some ground in Asia on speculation of the Chinese buying Italian bonds, the expectation is, at least for now, that Europe can also recover some of yesterday's losses at the outset.
All this cheer over an Italian bond buyer does, however, risk looking somewhat exaggerated, especially with the threat of a Greek tragedy still looming.
Sustaining the rally without any fresh data points will remain something of a challenge for the financial spread betting markets.
Key economic readings in the coming hours look set to be dominated by the UK, with CPI and RPI Inflation readings, trade balance and house price data due for release.
US retailers may attract some attention with Q2 numbers from Best Buy, but the big challenge now seems to be ensuring last night's gains don't become a dead cat bounce.
Ahead of the open we're calling the FTSE up 68 at 5198, the DAX up 98 at 5170 and the CAC up 53 at 2908.
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.
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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"Stocks Lifted by Reports of China Buying Into Italian Bonds" last update by AG, 13-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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