FTSE Spread Bets Rise Ahead of EU Finance Ministers Decision
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Betting 16 September 2011
Who would have thought that after all the Nick Leesons and Jérôme Kerviels that have “rogue traded” the markets there could be another so soon?
The losses caused by the actions of a single man to one of the oldest banking institutions in existence sent UBS’s share price tumbling yesterday. It has probably cost them more in reputational damage than the estimated $2 billion, yes that’s right, $2 billion.
It’s a vast sum for one man to lose and for a bank that was trying so desperately to recover from the 2008 banking crisis. Especially for a bank with an impending raft of job losses, sorry I mean cost cutting, this hit will make the cost cutting efforts seem like a drop in the ocean.
What is also surprising that in the past few years a vast raft of new in-house corporate governance, risk monitoring and compliance rules have been introduced in an attempt to try and mitigate these sorts of things happening. It just goes to show that no matter how much regulation you put in place, someone will find a way around the system.
Despite the rogue trading revelation, yesterday equity markets held up well and for UK stocks there was more good news for retailers following Next’s bumper figures on Wednesday.
This time it was the turn of Kingfisher, the owner of B&Q, to report stellar numbers and give retailers another lift.
But yesterday’s gains were led by banks who rallied on the back of the news that central banks will step in to quell any short fall in Dollar lending.
As we’ve regularly pointed out, banking stocks have suffered severe losses recently but in the past few days have showed small signs of a possible end to their declines. It’s still far too early to say the selling is over and today is a critical day for not just the banks, but the equity markets as a whole.
It’s all about today’s meeting of the EU finance ministers and the US Treasury Secretary who has come along for the ride. The financial spread betting markets have rallied so far this week into today, fully expecting the meeting to deliver something big.
When we say “big” we mean big and there are only a few options available to them. One is, for the politicians, the most undesirable and that’s an orderly default by Greece and an exit from the Eurozone. Unfortunately that will cost billions in losses for the banks and others that have lent to them and could set off a domino.
Others include a complete recapitalisation of the whole European banking sector to the tune of $1 trillion which would make the rogue traders looks rather insignificant.
Plus there is also the option of a Euro bond, another desperately unpopular solution, which in affect will mean the richer nations bank rolling and guaranteeing the debt of the poorer ones.
The FTSE is optimistic though ahead of any decision reached by the EU finance ministers, up some 30 points, however lower than where we were calling it earlier with our quote hitting the 5400 level once again.
Unsurprisingly many of our spread betting account holders came in last night and sold into the strength. Overall they are short of the market, which has recently proved the right move to take considering that the FTSE has retraced from around 5400 three times now in the past few weeks. Could this be the fourth rejection of that level?
The only meaningful bit of economic data today is the Mich confidence which suffered a sharp decline at the last reading and might see a rebound.
FX spread betting markets are gearing themselves up for today’s meeting and already are showing a degree of nervousness, with the Dollar showing good strength, in particular against the single currency.
EUR/USD is seeing some sellers early on taking it down to $1.3795 at the time of writing. Near term support and resistance are seen at $1.3765/05 and $1.3940/75 respectively.
The favourite commodity amongst investors is burning their fingers a little more each time it declines.
Gold is now firmly below $1800 at $1775 it is looking rather bearish at the moment with the short term trend downwards, capped by a falling trend line.
Support and resistance for the yellow metal is seen at $1745/25 and $1840/86 respectively.
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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'FTSE Spread Bets Rise Ahead of EU Finance Ministers Decision' edited by SD, updated 16-Sep-11
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