French Banks Weigh on CAC 40 Spread Trading Index Over Greek Exit Concerns

French Banks Weigh on CAC 40 Spread Trading Index Over Greek Exit Concerns

Today's update see » Financial Markets.

Spread Betting 9 May 2012

The anti-austerity rhetoric coming from France and Greece hasn’t been good for the markets in the last few days. Yesterday saw the FTSE 100’s 2012 gains wiped-out.

There’s nothing wrong with calling for more growth measures but it has to be in the context of existing fiscal capabilities.

Without some sort of prudence, government spending and debt burdens will continue to spiral and be even more difficult to address down the line.

In the case of France, the share of government spending in terms of GDP, is amongst the biggest of the Western economies. Increasing government spending will not be looked upon favourably by financial markets.

In the end, the new French President scraped into office with his message of change. He wants to renegotiate the most recent European fiscal pact, increase the minimum wage, reduce the retirement age (which Sarkozy had fought so hard to increase) and increase taxes on the rich.

Many of these measures were designed to do what all politicians want, i.e. gain power. It will be interesting to see if Hollande’s bite is as big as his bark.

His bark could get a little quieter if the political fallout in Greece continues and ends in yet another default and ultimately a Greek exit from the Eurozone.

The losses for the French banks would be considerable. The French CAC 40 dropped 2.8% yesterday, one of the worst performances amongst the European indices.

If the French government had to bailout one of their banks then this would cause serious ramifications for their fiscal situation. If so, Monsieur Hollande’s bark really would turn into a whimper.

Equities were sold off on both sides of the Atlantic yesterday. This was primarily down to the political uncertainty in Greece rather than France. Whilst the Dow Jones dipped below the 13000 level, it did manage to rally from its lows.

This morning European indices were expected to open in the black but at the time of writing few buyers have emerged and so we are roughly flat at 5555.

The euro remains under pressure, the last few days have seen a political impasse in Greece where leaders failed to form a government. This is fuelling worries of a Greek exit from the euro.

However, on the other side of the coin there is also growing speculation that the Federal Reserve will have no choice but to consider QE3 at some point if things turn really ugly in Europe.

As a result, the euro lost 55 points against the greenback and fell to $1.3002. However, that could be seen as a mild fall considering we have already dipped below this major support area. The single currency is trading at $1.2985 against the dollar at the time of writing.

Mirroring the sell off in equities and the euro, gold also posted a steep decline as the developments in the Greek political arena threaten to reignite the European debt crisis.

Sentiment is becoming more and more pessimistic. Even gold’s safe-haven status isn’t enough to attract investors, they are heading for the US dollar instead.

The drop of $33.57 to $1,604.39 took the daily gold market through support at $1,612. At the time of writing, the metal is below the psychologically important $1,600 level at $1,591.

Besides the political turmoil in Greece, on Tuesday, we also had the Saudi Oil Minister Ali Naimi saying that oil prices were too high.

That added downward pressure to the US crude oil price which continued its plunge to $97.01, 95¢ lower for the session.

From a technical point of view though, it was the second time crude oil futures found good support around the $95.50 level and rebounded. Although another test looks underway watch out for repeated failures to break the support.

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'French Banks Weigh on CAC 40 Spread Trading Index Over Greek Exit Concerns' edited by SD, updated 09-May-12

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