Financial Spread Betting Markets Fall as Fed Extends Twist But Fails to Start QE3
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Spread Betting 21 June 2012
So we got some more twisting from the Fed last night but financial spread betting investors were a little disappointed at the lack of QE3.
After the announcement, American shares did come off their highs but not significantly so. Even though we didn't see any further easing, the US economy doesn't seem to warrant it just yet.
The world's biggest economy is slowing, as the PMI surveys, confidence data and employment numbers indicate, but it's still in better shape than most.
Therefore, whilst the commencement of QE3 would have been welcomed by gold and stock market bulls alike, the rally might not have lasted that long.
In the past few years we've seen stimulus, such as quantitative easing, only give economies a temporary boost.
In the case of the US, this has been a much bigger boost than in UK, where our economy has simply been brought back to a flat line.
The problem is that the US hasn't been on an austerity drive. As their debt bubble gets bigger and bigger, they may eventually be forced into cutting back.
But the real difficulty will be coming off the drip feed of QE. As the effects of each round wear off, central banks will feel the urge and political pressure to undertake other measures to help boost growth.
This dangerous spiral could easily take us down the route of Japan where anaemic growth will simply be a thing of the norm.
This morning sees a little bit of profit taking in European indices following on from the mild declines in the US.
The FTSE is 30 points in the red, currently trading below the 5600 level at 5590. Those clients who'd been selling into the rally of the past few days will be pleased to see a respite in the FTSE's recent strength.
There is a lot of economic data to watch today, with PMI numbers from Germany and the EU, and retail sales from the UK.
This afternoon we will see the US weekly jobless claims, home sales, Phili Fed and, finally, the EU consumer confidence numbers will round things off.
Already this morning we've seen the German PMI services number come in lower than expected.
This is contributing to the slightly bearish sentiment in the markets as it shows that even Europe's powerhouse is not immune to the fallout from the Eurozone.
The Fed's action of extending the maturity of its balance sheet assets failed to impress the forex spread betting markets which were expecting more from Ben Bernanke.
After dropping initially, the euro actually recouped its losses against the dollar. However, this morning, the single currency is pushing a little lower in line with the weakness in other risk assets, trading at $1.2660 at the time of writing.
Downside pressure is also coming from speculation that the European Central Bank might consider a rate cut at its meeting next month.
Gold's rally until mid-way through 2011 was primarily driven by the Fed's continued bouts of QE. As a result, last night's lack of QE3 announcement rather took the shine off the precious metal.
With commodity markets anticipating more aggressive action from the Fed, and considering that Operation Twist increases maturity rather than balance, investors found little reason to rush into gold.
Meanwhile inflation numbers on both sides of the pond are falling so demand for the precious metal plunged.
As a result, gold prices lost $13 to $1,604 and have now dipped below $1,600 to $1,597 this morning.
The EIA released its weekly crude inventories which indicated the highest levels since 1990.
This weighed on the price of US crude oil, with the market falling $2.24 to $81.80. Intraday trading even saw the lowest price for eight months.
Disappointment over what markets saw as anaemic action from the Fed also played its bearish role.
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'Financial Spread Betting Markets Fall as Fed Extends Twist But Fails to Start QE3' edited by SD, updated 21-Jun-12
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