The regular monthly spread trading review from IG Index.
IG Index FTSE Trading - Feb 08
"Directionless month for FTSE 100 after falls in January"
After the FTSE 100's massive plunge in January when the index traded in a 1200-point range, it was perhaps unsurprising to see a more subdued February as traders caught their breath and tried to figure out where the market was heading.
The focus in February was on the banking sector, with a raft of results providing plenty of short-term volatility. An ongoing concern was how much further damage was going to be revealed thanks to the credit crunch. A little bit of optimism regarding the banks in the second half of the month contributed to the broader market rally.
For much of the month, the 6000 level proved to be a ceiling for the index with successive rallies into this zone bringing the sellers back out. Over the last week, the FTSE staged more of a decisive push through here but we go into March with many still wondering if there is a more sustainable rally to come. Or is this just a bounce before the market turns lower once more?
Opinion is still somewhat split on this and it will probably take some time before the picture is clearer. Recent economic data out of the US, eg
February consumer sentiment at five-year lows,
US home sales at nine-year lows, and
producer prices experiencing their biggest rise in 26 years
paints a gloomy outlook. It remains to be seen whether this is already being priced in by stock markets and if some sort of climb, back to the highs of 2007, is possible.
(IG Index price data: compiled 28 February 2008)
IG Index Crude Oil Spread Betting
"Record highs for Crude Oil"
After some short-term weakness in January, the end of February saw the price of crude oil once again push out to all-time highs, trading above $100 per barrel. As ever, there were a number of factors that contributed to the latest surge. Like gold, oil has benefited from a weaker US dollar - and the latest slide here helped 'black gold' move higher.
Next week sees a meeting of the oil producers' cartel OPEC and there were worries that it will decide to cut back on production. Whether that will happen remains to be seen but the simple economics of potential supply and demand helped play their part to push the price up.
Some investors also see commodities such as oil as a hedge against inflation and this is a real concern for many economies at the moment, which goes some way to explaining the continued bull market. This, plus continued global demand and the increased consumption by economies such as China, has helped fuel a multi-year rise in crude oil. Some analysts have viewed $100 as a key technical barrier for the price so it should prove an interesting market to watch in the weeks ahead.
(IG Index price data: compiled 28 February 2008)
Forex Trading with IG Index
"Euro sets all-time high against US dollar"
The story in currency markets over the past few years has been one of continued US dollar weakness. For example, in mid 2001 the pound in your pocket was worth less than $1.50 - by last summer it was worth more than two dollars.
The year had seen mainly sideways trading in FX markets but this changed in the last week of February as the Euro/US dollar exchange rate (EUR/USD) moved out to all-time highs, finally breaking the $1.5000 level.
To put this in perspective, a look back to December 2002 shows that one euro was worth, roughly, one US dollar. Recent moves mean the euro has strengthened by more than 50% since then. The main catalyst for the latest strength is the market belief that the US central bank, the Federal Reserve, is going to continue its strategy of cutting interest rates to try and stop, or at least minimise, the effects of a recession.
Over the past couple of months, the $1.4300 / $1.4500 area has provided support for EUR/USD weakness. If the current strength starts to run out of steam and turns lower, this could well be a zone that longer-term currency traders view as pivotal for the longer-term uptrend seen in this market over recent years.
(IG Index price data: compiled 28 February 2008)
The above comments do not constitute investment advice and neither IG Index nor Clean Financial accept any responsibility for any use that may be made of them.
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'IG Index Markets' edited by IG Index, updated 04-Mar-08
Index of UK financial market trading articles - the regular closing market comments from IG Index...see Index.
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