Spread Betting Week 1
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The regular Spread Trading Update from Simon Denham of Capital Spreads.
For today's update >> Spread Trading.
Spread Trading 9 Jan 2009
Today’s highlight will be the US employment figures out at 13h30 London time. Non-farm payrolls are expected to decline by 500k as opposed to last month’s 533k fall, but the real figure is anyone’s guess as the estimates range from a fall of 400k to 750k.
The unemployment rate is due to jump to a fifteen year high from 6.7% to 7.0% a figure that will prove 2008 to be the worst year for NFP losses since 1945.
Before then we have UK PPI data and industrial production at 09h30, with the significant falls in inflation being shown as monthly PPI should decline -2.0% meaning the yearly figure should drop from 7.5% to 3.0%.
This morning the FTSE 100 is a little undecided, as were US and Asian markets overnight and we are hovering around the 4500 level. There is still a huge degree of nervousness from the way indices have commenced 2009 as they are near where they started the year.
Of course it is early days however the early attempts to push higher have been reversed which is not a great sign. Investors will be hoping for some glimmer of hope from today’s NFP number so things will probably remain quiet until then.
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Spread Trading 8 Jan 2009
The FTSE is lower this morning having retraced some 4% since the recent highs hit on Tuesday. Bulls could see this as a buying opportunity but people will be sitting on the sidelines until the Interest Rate decision is out of the way. There’s also some important EU data out at 10h00 with consumer confidence, GDP and unemployment are hitting the wires at the same time.
Sainsburys have announced sales at the top end of forecasts but in a classic example of “buy the rumour, sell the fact” their share price is lower this morning having had a good rally in the run up to the New Year.
Whilst the Supermarket says that they had their best ever Christmas from a foot fall point of view all those shoppers have been benefiting from hugely discounted prices and there are still concerns about the economic outlook, especially when competing against Tesco, Asda, Lidl and Aldi who have been slashing prices too.
Also see Should We Have More Interest Rate Cuts.
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Spread Trading 7 Jan 2009
Equities continue their march higher with the FTSE posting their fifth daily gain in a row. We’ve now put on 425 points or 10% since the close on Christmas Eve and last night’s close above 4600 was a good sign for the bulls.
The important thing to note though is that despite the broader index’s rise some stocks have performed spectacularly poorly and one in particular is Lloyds shares who were one of the biggest fallers yesterday dropping over 5%.
As the index has rallied you would expect it to be driven largely by the good old blue chips, but since this has not been the case it makes stock picking all the more important. Time and time again we hear comments such as “picking your stocks carefully will be of paramount importance throughout 2009” and at the moment you can see why. Whilst there maybe many a bargain out there at the moment, investors should tread carefully and look for companies with solid balance sheets if they want to buy some shares.
Further indications of light at the end of the tunnel are how some stocks are moving in a counter intuitive way. Take the retailers for example yesterday who have had a dire last few months and many of them look to be staring down the barrel, but some posted big gains in the session.
Often fund managers who call themselves contrarian are incredibly successful with their strategy and it would seem that a lot of these contrarian investors believe it is now time for retail stocks to recover since everything about them seems to be disastrous.
M&S this morning is higher following its trading statement and news that losses were not as bad as expected. A greater number of job losses and aggressive cutbacks at their Simply Food stores also give investors a glimmer of hope that drastic action is being taken to turn their fortunes around.
So this morning sees a little froth being taken of the top with the FTSE down a meagre 20 points but holding onto the 4600 level at the moment. Miners, who have contributed to much of the last few days rises are the ones suffering from the selling this morning and interestingly the more defensive sectors are also leading the decline with utilities being badly hit.
The minutes from the last Federal Reserve meeting revealed their concern over the outlook for the US economy, citing that there are still considerable risks to any recovery. Whilst the dollar spend most of the day recovering against the euro to around $1.3310, the euro pulled back somewhat to $1.3510. The Euro has now strengthened in early London trade and currently it’s at $1.3590. £1.3415 remains the support level, the next upside target is $1.3650.
Sterling had another good day against the euro nearly touching £0.9000 at one point yesterday. This morning’s trading is favouring the Euro so far as we’re back at £0.9100.
As the euro’s gain in the final moments of trading last night allowed gold to have a good rally back to over $860. If $873 is taken out then this could pave the way for another test of $890 and then onto $900.
For those who are bullish of the euro (ie dollar bearish) then taking a long position in Gold could pay off. However for the moment the trend is still downward for the precious metal unless we take out $930.
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Spread Trading 6 Jan 2009
The FTSE this morning is proving remarkably resilient however it is now a little lower than our original calls of around 4600.
The papers could not be filled with more bad news with firm after firm going to the wall and no indications of the situation improving.
It seems illogical that the market has put on nearly 10% in the last week and is not plummeting to new depths. It seems that there is an appetite for equities at the moment as investors look to put their money at least somewhere rather than sitting in cash earning a meagre 1% (which the rate for cash deposits most certainly will be after Thursday’s interest rate announcement).
However, now comes the risk warning. Whilst last year’s 30% decline in equities may look to many to be an absolute bargain the risk is that the market has not priced in worse things to come.
With figures from the Bank of England showing non-financial UK companies having less cash on deposit than any time since the early 1990s, once their cash flow completely runs dry there will not be any banks or white knights to come to their rescue. The next action to take will have to be aggressive cost cutting in the form of jobs.
It is unemployment that is one of the biggest threats to any full blown recovery and if this is worse than investors had predicted we could see a “3” in front of the FTSE 100’s price before we see a “5”. On top of this, things are not getting any better for the housing market after Nationwide figures reported the biggest annual fall in house prices last year since records began in 1991 and on top of this their consumer confidence reached new depths falling from 50 to 47 when only a few months ago the reading was 100.
The markets have commenced this week on what can be described as a cautious footing since reaching 4600 last Friday. The momentum from the few days over the festive period looks like it has come to a slight standstill.
For those who have been thinking things have been rather dull so far this week from a trading perspective then you need look no further than the Forex markets. Sterling has regained nearly 7% on the euro in the last week and since the single currencies gains were made on extremely low volume further recovery cannot be out of the question as we look like heading back to the £0.9000 level which is where support is seen.
As with the equity, market Oil is suffering from a little profit taking this morning. UK Brent Crude has dipped from $50, which it hit yesterday, to around $49.45. The oil market will continue to remain supported as long as the military action continues in Gaza and has given good support under the market for the time being.
Gold looks to have shied away from the $900 level which it looked like it was going to test again only last week but we now back to the $840 mark with support seen around $830-$820.
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Spread Trading 5 Jan 2009
Despite the bank holidays and festive period over the last two weeks the FTSE 100 has confounded the sceptics and put on 8% since Christmas Eve. As people return to their offices and come to terms with what will almost certainly be a tough year ahead realism will most likely hit home and the belt tightening will really commence.
The scenes of the Christmas shopping sales did come as a surprise as the bun fights took place with shoppers bustling for their bargains but alarmingly yesterday Oxford Street was a desert when usually it is still relatively busy. This was the first time I had seen tumble weed blowing down a major high street and does not bode well. If 2008 had not already been a year of reckoning for many retailers, then 2009 certainly will be.
This week also sees trading statements from a bundle of retailers with Tuesday providing news from Debenhams, Jessops and Next. Then on Wednesday we see Marks & Spencer give their trading statement. These updates will reveal the extent of the carnage over the Christmas period and the gloom expected in the months to come.
Sales are due to fall across the board. M&S are expected to release the worst numbers after struggling to shift old stock in the run up to Christmas. With big discounts they may end up having to give some of their stuff away.
Unfortunately for retailers everything bar interest rates is going against them and not even this is proving enough to kick start the consumer. With confidence in tatters people are seriously starting to think about how much they spend and the way they spend. Since M&S’s food range is generally at the upper end of the market they are going to suffer, having already seen sizeable declines in this area.
The availability of credit is also a major disadvantage to the sector as people who used to be able to purchase big ticket items on finance deals cannot get the new fridge or TV unless they pretty much purchase outright now.
Wednesday also sees updates from baker Greggs and house builder Persimmon. Following the recent mortgage approval data showing another record low the woes for the housing market look set to continue.
Whilst house prices saw big falls throughout 2008 the trend looks set to continue in 2009. We will not see prices stabilise until they come back to the levels of affordability for first time buyers. On top of this we need to see mortgage lenders willing to give out attractive deals and entice buyers back in. Until then any buyers out their will continue to offer around 10-15% below asking prices.
Thursday has more trading updates from the likes of Sainsbury, William Hill, Man Group and recruiters Michael Page and Hays. The focus of the day will be the Bank of England’s rate decision which is due to cut from the current 2.00% to 1.50%.
Some believe there could be a full percentage point cut to 1.00% which is almost academic really because this is most unlikely to be passed on through and have a material effect for a long time. Whilst the banks themselves have been smashed to pieces by their write downs and huge bad debts, they now can’t charge for lending their money
Whilst these rate cuts from the Bank of England are designed to stimulate the economy and encourage lending they are almost having the reverse effect. Banks have to lend their money for next to nothing, still with the risk that they could not see it again.
Friday’s highlight is the US’s non farm payroll data and is the biggest piece of data to commence 2009. Another big decline of 500k is expected and the overall unemployment rate due to jump to 7%.
Sterling is staging a bit of a recovery against the euro having clawed back some 4% since the record low it hit of £0.9800 a week ago. We are now back at £0.9415 with many clients seeing this as a buying opportunity in the belief that the overall trend is still sterling negative and we will see parity between the sterling and euro.
Sometimes it takes a little longer for markets to reach their “destiny” as we saw with gold hitting $1,000 and Sterling/Dollar hitting $2.0000 but more often than not eventually they get there.
Editor’s Note: Not long after gold hit $1,000 and Sterling/Dollar hit $2 the markets saw some relatively quick corrections. Oil looked poised to take £150 last year but never did. Crude is now floating around $40-50. You have been warned.
The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
'Spread Betting Week 1' edited by SD, updated 11-Jan-09
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