UK Spread Betting Markets Fall on Spanish and Italian Bond Fears
Spread Betting 5 April 2012
Markets were in a very bearish mood yesterday and the sharp decline has almost wiped out all the gains so far this year.
The FTSE also breached various near term support levels as a bit of panic set in with fears that bonds markets might be setting their sights back on Spain and Italy.
The economic data from the Eurozone has been poor and financial spread betting investors feel they may have been walking blindly into the rally, forgetting that an economic recovery cannot be built and sustained on just stimulus alone.
For the longer term confidence has to be restored and converted into investment and spending. This is not what we are seeing right now, except funnily enough for the UK which is proving a small exception to the rule.
So with the Eurozone suffering from severe austerity and a huge lack of confidence any recovery beyond now looks like to be in trouble. This includes Germany too where Europe's biggest economy looks like it could be hitting the buffers.
These concerns were also voiced by the ECB' President Mario Draghi who was not exactly awe inspiring in his press conference following the ECB rate decision. This just added to the bearish sentiment.
Then to top everything up, as we know, the stock market rally has been built up on the back of stimulus from central banks. Only recently the Fed, the BoE and ECB have made it quite clear that their stimulus programs are coming to an end.
So what's going to fuel the rally from here? Well one possibility is the Chinese central bank. Not only has the bull market been fuelled by stimulus from western central banks, but the growth in emerging markets in particular China.
The emerging markets have only barely turned on their stimulus taps. That could be a trigger for the next step upwards if it ever materialised.
This morning the FTSE 100 is trying to recoup some of yesterday's losses, the worst day of the year for the stock market index.
At the time of writing the index is just about holding ground above 5700 at 5710. Following the move lower, all eyes are on the next support levels seen at 5680/20 and 5500.
This morning's bounce so far is a tentative one and there is little buying conviction as often these sharp sell offs can come in twos. However, if we do recover resistance is seen at 5775, 5800 and 5825.
The BoE announces its interest rate decision at lunchtime. Whilst they might highlight the good PMI data that has been released recently and the probability of avoiding a double dip recession, the outlook remains bleak.
No action is likely at this meeting but we could get hints of further assets purchases in H2 of this year.
The euro traded lower against the dollar as weak demand at the Spanish bond auction stoked fears that the Eurozone sovereign debt crisis could come back with a vengeance.
Also weighing on the euro were disappointing German factory orders and Mario Draghi's dismissal of the need to prepare an exit strategy for the billions of liquidity pumped into the Eurozone given the current fragile state of the economy. At the time of writing the EUR/USD spread betting market is at $1.3135.
The price of gold plunged on Wednesday to its lowest level in three months as anxious investors continued to digest the effects of diminished chances of QE3 from the Fed.
Gold fell almost $58 to $1,614 on a day with traders fleeing the equity markets. Some would have thought that the traders would have sought the metal as a safe haven.
This morning, a little bit of bargain hunting is helping to lift the precious metal to $1,624.
Crude oil futures slipped $2 as a rise in oil inventories surged past analysts' estimates.
Adding to the negative mood was the fallout in equities which strengthened the dollar.
Brent crude touched a low of $122.30 before finding support and has subsequently recovered back above $123, but a bearish global outlook is likely to keep prices pressured.
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'UK Spread Betting Markets Fall on Spanish and Italian Bond Fears' edited by SD, updated 05-Apr-12
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