Stock Market Indices Slide as Markets Fear Withdrawl of Liquidity

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Stock Market Trading

: 14 June 2013

In Europe, stock market indices are set to open higher as equities steady themselves ahead of next week's FOMC.

Stocks finished well off their lows yesterday as short-term bearishness appeared to peak and we saw a partial short squeeze take place.

However, this doesn't mark a turn around in sentiment, but more of a positioning ahead of the upcoming Federal Reserve meeting.

Yesterday's bout of better-than-expected US economic data saw retail sales rise by 0.6% in May, the biggest increase in 3 months.

On the back of this, the Dow Jones rallied 199.5 points to 15,187.5 which would imply that plenty of investors believe that the Federal Reserve is planning to keep interest rates at record lows.

Stock Market Trading

: 13 June 2013

European equities are set to slump on the open as persistent weakness in the US and Asia spills over.

The sell off from the 22 May high, although interspersed with a few upticks, is set to continue as the thought of a world without quantitative easing makes the online spread betting markets shudder.

Despite some better than expected data from Europe yesterday, their impact was almost irrelevant given the uncertainty surrounding the longevity of stimulus measures from central banks.

Overnight, US markets closed on their lows and Asian markets are once again taking a hammering. They are being led lower by the Japan 225 index which is set to weigh on the European open.

The Fed has let it be known that they have internally speculated about when to reduce the size of their bond purchases i.e. still ease but at a marginally smaller amount. As such, some pundits have suggested that these moves lower are an overreaction.

Nevertheless, the steep moves are more a sign of how reliant and sensitive markets have become to monetary policy and a forewarning should a central bank ever actually try unwinding their quantitative easing policies.

The change in the Federal Reserve's narrative continued to send investors to the sidelines yesterday. Investors seemed happy to take some profits off table and wait for fresh signals.

Yesterday, the Dow Jones index dropped 166 points to 14,981 during the third losing session in a row.

The initial US jobless claims due later today may offer some hints but participants are probably after something stronger.

Stock Market Trading

: 12 June 2013

European equity markets are set to open significantly lower as the fear of liquidity withdrawal intensifies.

The thought of a life with out a central bank backstop isn't going down too well with markets at the moment.

With the Fed trying to communicate some cloudy message about the tapering of QE just causing confusion, the BoJ keeping its arms crossed and the ECB's OMT coming into question before it's even got off the ground, markets are pricing in an uncomfortable world without stimulus.

Notably, government bond yields around the world are rising as traders decide to dump assets now that their major purchasers look to be backing away from the table.

Although most benchmark yields are at historic lows, the recent rise and the prospect of them moving back to long-term averages has traders spooked that the underlying economy isn't ready for it.

Also spurring uncertainty is the question of whether central banks will be able to control the normalisation of yields. Or will a rush for the exit in bonds cause an unbearable spike crushing the consumer and equities in the process?

Bank of Japan Governor Kuroda has played down any hopes of increasing monetary stimulus, he's possibly fearful of the market becoming an addict.

Taking notice, US investors weighed the chances that the move will be replicated on their own turf. This sent the Dow Jones 81 points lower to 15,148. With a recovering US jobs sector it is no surprise the scale back speculation is gathering momentum.

Stock Market Trading

: 11 June 2013

European equities are set to open lower taking their cue from a weak Asian session.

A flat finish in the US last night leaves traders looking to the Asian markets for a hint on sentiment. The lack of dovishness from the BoJ's Monetary Policy Statement is also set to put traders on a mildly bearish start.

Although the assessment of the Japanese economy was more upbeat, the lack of new measures has disappointed some.

Adding to the cautious start will be the legal battle playing out in the German Constitutional Court regarding the legality of the ECB's Outright Monetary Transactions program.

Although the program hasn't had to be activated, the mere threat was credited with easing yields in the periphery last year. And whilst the court has no power over the ECB, concerns are brewing that the legal wrangling could spark an attempt by bond vigilantes to see if the OMT was merely an empty threat.

Despite the Dow moving up in early trading, the US index gave back most of the gains on late profit taking following last Friday's rally.

Meanwhile we saw James Bullard, President of the Federal Bank of Saint Louis, saying that inflation below the 2% target is a good reason to keep the current asset buying policy in place.

Stock Market Trading

: 10 June 2013

This morning, we are set to start the week on a softer footing, with equities pulling back following Friday's gains and some weak Chinese data.

After a large burst of volatility and indecision, with some traders seeing the 175k NFP as a reason to sell whilst others bought, stock markets finally came to the conclusion that Friday's data was positive.

The US employment report just about topped forecasts of 167k and so the Dow Jones settled 184 points higher at 15,220.

With economic data indicating a lukewarm US economy, susceptible to rapid cooling if left alone, traders are confident that the timetable for Fed tapering won't be as immediate as some had suggested.

Having said that, Asian stock markets have reacted far less excitedly to Friday's US data.

On Sunday, there was another raft of Chinese data which indicated broad weakness and possible trouble ahead for the economy.

Stock Market Trading

: 07 June 2013

Following an impressive afternoon rebound in the US, European stocks are set to open higher this morning.

Yesterday's US jobless claims data was roughly in line with expectations and so the Dow Jones recouped earlier losses and closed 68 points higher at 15,041.

Although the positive finish should give indices a lift, the morning session is likely to be one of hesitation ahead of the US Non-Farm Payrolls.

Current expectations are for an increase of 167,000 jobs, with the unemployment rate seen as unchanged at 7.5%.

Most months are cautious affairs as traders consider recent data and hypothesise about what the releases will be.

Unfortunately, the latest jobs data has been quite mixed, so the odds of an upside or downside surprise seem quite even.

However, the main point of contention surrounding this month's reading has been the debate about what to do once the figures are known.

With the added complexity of how a good or bad figure will affect the Fed's tapering timetable, there doesn't appear to be a clear consensus of what traders will do post release.

Even if you knew that the payrolls were going to be above expectations, it would still be difficult to trade the release because you can argue for both a rally and a sell off in equities.

'Good' data would normally be bullish, but not if it hastens the taper. And of course, 'bad' data should be bearish, but it may delay the tightening of monetary policy.

Even having inside info won't help you today.

Stock Market Trading

: 06 June 2013

Weak closes in Europe yesterday are set to be exacerbated today as the bearishness persisted overnight, with US markets closing on their lows and Asian markets firmly in the red.

Today sees a brief respite from US data, and hopefully the associated tapering fears, with only the Challenger Jobs Cut report being released.

For once, Europe may find direction from its own region, however, with both the BoE and ECB expected to stand pat on rates and quantitative easing, there's unlikely to be anything of note initially.

Having said that, there is a growing chorus calling for the ECB to do something about growth in the region after the shocking GDP misses that came out in mid May.

With Europe still mired in its longest recession ever and unemployment at an all time high you'd think this would be cause for some form of help.

Nevertheless, pundits are suggesting that Draghi will fob investors off by using the minor improvement in recent PMIs and an expected pick up in growth later in the year to justify doing nothing.

Yesterday's ADP employment data, which is often seen as a signal for the main Non-Farm Payrolls report, missed estimates and sent the Dow Jones plunging.

At the same time, US factory orders did not impress the global spread trading markets either.

Later on, the release of the Fed's Beige Book indicated that the economy recovered at 'a modest to moderate' pace and this further accentuated the decline in shares.

This has certainly set the stage for an interesting employment report tomorrow.

Stock Market Trading

: 05 June 2013

European indices are set to open lower as an indecisive market flips over to the bearish side following some hawkish Fed comments.

Despite a positive finish in Europe yesterday, US markets turned negative on a hawkish press release from Kansas City Fed member Esther George.

Given all the conflicting economic data and divergent views coming from various Fed members, traders are likely to remain highly cautious ahead of Friday's big releases.

With the unemployment rate and pace of job creation among the biggest determinants of when the Fed will scale back bond purchases, traders are bracing themselves for a volatile session.

One of the biggest catalysts of uncertainty comes from traders trying to solve the conundrum of whether good news is good or bad and vice versa.

Even after the Non-Farm Payrolls are released on Friday, it could be a while before the markets comes to a conclusion on how to discount it.

As a result, the Dow Jones dropped 49 points to 15,182 as investors found little reason to push the market higher and decided to book some profits instead.

Ever since the Fed mentioned the possibility of scaling back the stimulus, the short-term trend has become slightly bearish, with participants on standby for further clarifications.

Stock Market Trading

: 04 June 2013

As market sentiment is once again swayed by dovish Fed hopes, European indices are set to gain on the open.

In overnight trading, US stocks managed to claw their way into positive territory as disappointing economic data revived expectations that the Fed will maintain its stimulus measures.

The US Institute for Supply Management indicated that the manufacturing sector had unexpectedly contracted last month, fuelling worries of a slowdown in the recovery.

Adding to this were some dovish words from Atlanta Federal Reserve President Dennis Lockhart.

Although he said that a reduction in bond purchases may start this summer, he played that down by rephrasing it as more of a recalibration and not the full exit which the market appears to fear.

The result was a rally in the Dow Jones, which added 100 points to close at 15,229.

Despite the gains, today's US data is expected to show a modest improvement, with ADP Employment particularly in focus ahead of Non-Farms, so we may see markets pull back if the figures point towards Fed tapering.

Stock Market Trading

: 03 June 2013

European shares are set to slide on the open following a weak close in the US on Friday and choppy overnight trading in Asia.

After making a positive start, US markets took a turn for the worse, selling off right into the close as Fed uncertainty continues to keep traders in a bipolar state.

This time, some better-than-expected US consumer confidence and business activity numbers triggered the declines, with the Dow Jones losing 205 points to 15,125.

With good US economic data now warranting some profit taking, this week's raft of releases is surely set to ramp up the volatility.

By Jonathan Sudaria, 14 June 2013

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