US Stocks Spread Trading: Strong Factory Orders Boost Dow Jones
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Spread Betting 4 July 2012
All eyes will be on Mr Diamond today as he appears in front of the Treasury Select Committee to be grilled over the Libor issue.
The fact that he has resigned is unlikely to make the MPs any less hostile, but equally it puts him in a much stronger position to defend himself.
The mud-slinging might make for some interesting viewing as the BoE and senior politicians are dragged into the fray. I would also imagine that every other bank CEO will be watching to see what the implications may be for them.
We can expect 'Libor-gate' to drag on and on as the Parliamentary committees bring in more and more people to answer their questions. A full inquiry is only going to further dominate the headlines.
Whilst the drama unfolds, there will be several important questions to be answered. For example, how long was it known that this was a widespread practice and what was actually done about it?
In addition, to what extent were officials aware at institutions such as the Bank of England? The internal memo released by Barclays yesterday is no doubt just the start of a raft of evidence for Diamond to defend himself with.
Yesterday's better-than-expected US factory orders allowed spread trading investors to overturn the pessimism that had followed the previous day's weak manufacturing figures.
This, along with growing speculation that the Fed will step in with new stimulus, saw bullish US investors push the Dow another 75 points higher to 12,943.
Once again US stocks look much stronger than their European counterparts. Having broken to new recent highs, we could be gearing up for another little push higher.
This won't happen today, however, as the US is closed for Independence Day. As a result, the focus will shift to Friday's Non Farm Payrolls.
The Dow's rally did initially have a positive impact on the FTSE, as we had been calling the index to open higher. However, a pull back in copper and crude oil has meant that we're now in the red at around 5670.
Despite the early weakness, the FTSE has broken above the near-term resistance and the bulls will be eying up the next levels at 5715 and 5760. Having said that, without any direction from US markets later today, we may have to wait for a sustained push.
Economic data comes primarily from Europe today with the UK's PMI services figure one of the highlights. This is expected to slightly decline and may show its first signs of weakness after months of coming in above expectations.
Unfortunately for the UK economy, the strength in the services sector has not been enough to prevent a double dip recession. As yesterday's construction figures highlighted, the weakness in the construction and manufacturing sectors is causing the overall recovery to stall.
Today will also see the Italian and European PMI services figures, as well as European retail sales and the EU's final reading of GDP.
The EUR/USD FX pair added 21 points yesterday, rising to $1.2604, as the US factory orders data modestly improved the sentiment in the currency markets.
However, it should be added that volumes were very light ahead of the US Independence Day holiday. Furthermore, there may have been a reluctance to commit too much ahead of the ECB meeting on Thursday.
Signs that the economic recovery remains tepid fuelled speculation that the central banks will be forced to adopt extra measures to spur growth.
As a consequence, many financial investors looked to buy gold as a store of value. The precious metal gained $20 to $1,616.90 and could post a more significant recovery if QE3 is announced in the US.
With Iran back in the headlines, it was only a matter of time before a risk premium was added back into the price of crude oil.
Yesterday, we seemed to see exactly that as US crude surged by $3.99 to $87.66. The rally might have also been accentuated by some short covering ahead of the ECB and BoE meetings and Friday's US Non Farms data.
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'US Stocks Spread Trading: Strong Factory Orders Boost Dow Jones' edited by SD, updated 04-Jul-12
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