Indices Spread Betting Markets Continue to See Volatility After Downside Moves
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Betting 11 August 2011
Whilst the riots around the UK look to have dissipated the markets have not seen the end to their chaos as yet another sea of red covered traders' screens yesterday.
The Dow Jones gave back most of Tuesday's gains and so the big bargain hunt was proved to be short lived with the great bullish "hammer" that was formed seemingly ending up being a false signal.
Fear is still gripping investors as the prospect of slower global growth keeps the bears firmly in control of proceedings.
Needless to say many people are blaming short sellers again for the recent crash, but if you are a rational investor who is concerned about the situation of French or German banks, then you are going to sell, sell, sell.
Even if you don't own the underlying stock somewhere along the line you're probably exposed to UK banks and so why shouldn't you be allowed to short a stock?
However, the FTSE this morning is perkier again as Asian stock markets didn't follow through with a sell off following the big move lower in the Dow. Many people seem to believe that if you buy now, you should be in good shape come year end.
At the open the FTSE is up by some 90 points around the 5100 area.
Caution remains though as volatility remains at well above average levels. The major moves in the indices spread betting markets are a characteristic of markets following such a substantial move to the downside.
The FTSE has been jumping in 20, 30, 40 point leaps regularly making trading conditions exceptionally exciting, but at the same time exceptionally dangerous. As I often say in this comment during these sorts of market conditions, the best trading strategy is often to simply sit on your hands.
In the UK the outlook is particularly gloomy after the Governor of the Bank of England downgraded UK GDP forecasts and reiterated that inflation could peak at 5%.
One thing is for certain and that's that interest rates in the UK will remain low for some considerable time to come. This means that savers will simply have to hope that inflation will come down on its own accord as they know they're not going to get any help from the BoE.
Slower growth, higher inflation, it's something we've been discussing throughout 2011 and it's only in the past couple of weeks that the financial markets seem to have taken note.
Many indices are already in their so called bear market, classified by a 20% fall from the highs, in particular the German Dax which is 24% down now.
For now the Dow and FTSE are yet to fall into that category. However, they are worryingly close and it might only be a matter of time before they too succumb to the bear's claws. For this morning though the bulls haven't quite given up the fight yet.
The strength in equities is equating to US Dollar weakness across the board with EUR/USD and GBP/USD being bid higher.
The Australian Dollar is also seeing a nice bounce, having been under pressure of late. AUD/USD is at $1.0285 having recovered from parity on Tuesday.
The US Dollar remains the whipping boy and USD/JPY is only a few ticks above is fifteen year low at ¥76.50. Interestingly it is just about holding its own against the Swiss Franc, just above the recent lows at SFr 0.7290.
Is gold lower this morning? It can't be. Well believe it or not it is, but by nothing serious in the scheme of things.
The yellow metal is currently trading lower by 10 Dollars to $1784, but marked a new all time high above $1800 late last night.
The uptrend is still firmly intact but the higher gold goes the more it looks like a chart that is forming a huge spike. Such charts can often see a big move in the opposite direction so we'll have to wait and see if gold is the next big bubble.
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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'Indices Spread Betting Markets Continue to See Volatility After Downside Moves' edited by SD, updated 11-Aug-11
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