Spread Trading Investors Consider Stability of European Funding Markets
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Trading 12 August 2011
With volatility being the name of the game this week, the European Securities and Markets Authority stepped in yesterday to flex their muscles.
They decided to put a ban on short-selling in four of their key Eurozone nations, well, for at least 15 days.
With Italy, Belgium, France and Spain all being thrown into the cage, there were certain guidelines for this ban. France was prevented from short-selling bank equities, while Spain was restricted from dragging down all financial instruments.
As per usual though, the UK did not follow suit, with the FSA stating it "has no plans to introduce a short selling ban". Even with this news, market pessimists did not get the impression that this would help the quickly decreasing market size, warning that the ban would not help. Many investors referred back to 2008 when UK and US bans failed to stop panic selling.
Across the globe, things weren't looking any rosier, as the Japanese Nikkei sunk further below the 9000 level as traders continued to rock the boat during the most volatile week since the March 11th quake.
The strong Yen focused foreigners' concern, prompting them to sell carmakers and assisting in pulling Toyota to its lowest level in 2011.
The UK blue chip index saw, as it has the rest of the week, a choppy session yesterday trading between a low of 4943 and a high of 5172.
Spread trading investors seem to be focussing on the big question mark hanging over the heads of European nations. Questions are mounting about the stability of funding markets and authorities struggling to solve a crisis of confidence in Europe.
There is no important British data being released on Friday to nail in some direction. As a result, focus will be on the US retail sales at 13:30 London time, and the first reading for the August consumer sentiment index at 14:55.
The rumours that swirled about the trouble engulfing the French banks were strongly denied yesterday and jobless claims from across the pond came in better than expected.
This led to forex spread betting investors seeing a recovery in the single currency against the US Dollar, gaining 78 pips to close at $1.4215. At the time of writing, pressure has been reinstated though, with the pair trading at $1.4177.
The Swiss Franc tumbled from its recent lofty highs yesterday, as comments from Swiss National Bank VP Thomas Jordan ignited concern.
He said that a temporary peg to the Euro would be legal and part of the central banks tools which could be used to stop the appreciation in its currency.
The spotlight shone on the pressure on the Swiss economy by a strong Franc and the fact that the intervention earlier in the month was not enough to boost exports and help growth. Overall, the Euro - Swiss Franc rate fell to SFr 1.0800 whilst the US Dollar - Swiss Franc market lost 363 ticks to SFr 0.7623.
Gold was no better off as investors jumped out of the hedge after CME group's announcement that margin requirements were raised by 22% due to the higher volatility, not the higher prices.
Additionally, investors seemed to be taking profits from gold and investing them into riskier assets as risk taking sentiment returned.
With a bumpy session this morning though, could those risk takers be re-evaluating their decisions even with the assistance of the ban on short selling?
The crude oil spread betting market received a boost from the rebound in equity markets and better than expected initial jobless claims from the US.
This came a day after the Department of Energy released a bullish inventories report creating speculation about the demand in the energy sector picking up.
So the recent decline in prices looks like it was mainly caused by the lack of substance in economic data.
Maybe the bullish long term view means that investors aren't going to see the bears for much longer, thus scuppering any chance of us seeing cheaper prices at the pumps.
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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'Spread Trading Investors Consider Stability of European Funding Markets' edited by SD, updated 12-Aug-11
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