Financial Spread Betting Markets See Dow Jones Rally Off Support
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Betting 5 October 2011
Financial spread betting markets are in turmoil and there’s no doubting that.
Yesterday’s volatility shows how investors have little clue as to which way to look. One minute all of Europe’s banks are about to crumble, the next they are about to be saved.
What is unbelievable is that only a few months ago Europe’s banks were given a clean bill of health following the second round of stress tests, but these crucially didn’t take into account the possibility of a sovereign default.
The elephant in the room is starting to get restless as the liquidity within the money markets dries up and we’re almost back to square one from a few years ago.
The credibility of the EBA, who undertook the stress tests, has been severely damaged, or what reputation it had left after the tests results came out.
According to them only a handful of banks were in the danger zone. There was also no mention of the mass write downs that are now being talked about that some European banks will have to take in order to stop the rot.
Last night when the Dow Jones was in serious negative mode and had almost dipped into technical bear market territory before buyers went absolutely berserk all because of a simple article in the FT.
US markets rallied over 3% in their final hour of trading which was compounded by a sudden bout of short covering as sellers were caught off guard. The move indicates just how difficult trading conditions are at the moment and how sensitive investors can be to the smallest bit of information.
US investors seemed to welcome the realisation of EU finance minsters that something has to be done to recapitalise Europe’s banks, and something has to be done quickly. However, in Europe, the bounce has almost already fizzled out as investors feel “we’ve heard it all before”.
We heard it at every meeting of EU finance ministers in the past and every G something-or-other meeting, yet nothing has been done.
The FTSE initially opened an impressive 100 points in the black before getting dizzy and now at the time of writing we’re hovering back around 5000.
There are lots of calls that equities are currently undersold, but until the elephant in the room is removed, no one’s going to jump into the icy cold waters.
There are some economic data releases that investors will focus on today in order to try and take their minds off things.
This morning sees the all important PMI services number from the UK which is expected to have a bit of a confidence knock but remain above the crucial 50 level.
It will be very interesting to see just how consumer sentiment in the UK has been affected by the recent turmoil so this morning’s number will be closely watched.
Then there’s the prelude to Friday’s Non Farm Payroll in the form of the ADP private payrolls, ending up with US services data.
The Euro took full advantage of Fed Chairman Bernanke’s speech, after his reference to the US economy as “close to faltering”, created a short term panic that the US could go back to quantitative easing.
The Dollar tumbled and the Euro was only too glad to make up for the sharp falls seen recently, jumping as high as $1.3368.
Having said all that, the Euro - Dollar pair is off again this morning, trading down at $1.3298, as traders are speculating that the ECB could look at increasing monetary stimulus. They are also looking to today’s release on Eurozone retail sales, which are expected to show a fall for August.
The three session winning streak that has been helping gold claw back recent losses came to an end yesterday, with the yellow brick losing 36 Dollars, closing at $1624.1.
As in previous sessions, it contradicted the negative correlation it has with the US Dollar, as Fed Chairman Ben Bernanke downplayed inflationary concerns, which in turn lessened the appeal of the precious metal as a hedge against rising prices.
This morning things are quiet after dipping to as low as $1600 yesterday, but we’re pretty much flat at $1625.
Crude started off yesterday’s session in the negative as Greek debt worries lingered. However, after Bernanke’s speech, stating that he’s determined to take extra action to boost the economic recovery, things started to look a bit rosier for crude oil traders.
It’s likely that the rebound in black gold was also helped by the sharp drop in the US Dollar and the rebound in the equity markets. At time of writing Brent crude is trading at $101.76.
The above comments do not constitute investment advice and neither Financial Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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'Financial Spread Betting Markets See Dow Jones Rally Off Support' edited by SD, updated 05-Oct-11
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