Stock Markets: 08 June 2012
Hopes of further monetary stimulus have been dashed once again. The world's major central banks have made it clear that they are not the answer to all of our economic problems.
The inaction from the ECB, BoE and the Federal Reserve Chairman Ben Bernanke has given markets a little time to pause for thought.
Yesterday, an early rally in the Dow Jones
was undoubtedly driven by China's first interest rate cut since December 2008. Investors piled into resource stocks in the hope that other central banks would follow China's lead.
However, that optimism did not last long and investors remain nervous about how things will unfold in Europe over the near future.
Whilst Bernanke was speaking, risk appetite gradually wore off and this caused the Dow to retreat from its highs. That profit taking has also fed through to the open of European markets this morning.
The FTSE is trading some 40 points lower at 5410, after failing around the 5480/5510 resistance level. As a result, a break above this resistance will remain the bulls' near term target.
Our spread trading account
holders have enjoyed the bounce in equities, after positioning themselves for such a move just before the rally materialised.
This pre-emptive stance was going against the weakness of recent weeks and so those with the strongest nerves have been rewarded.
Stock Markets: 07 June 2012
Markets enjoyed a relief rally yesterday as investors are becoming more optimistic that central banks will add further monetary stimulus.
The ECB did not answer their prayers, as they announced an extension of the LTRO program but did not discuss a new round of liquidity provision.
Nevertheless, the ECB President Mario Draghi did say that 'officials will act as the euro area's outlook worsens'.
This encouraged investors to continue buying equities
, sparking a sharp rally in the Dow Jones index, and we're seeing further strength this morning at the European open.
However, one can't help thinking that we've seen it all before. Whilst the QE that we have seen has given a boost to short term growth, it's done little to address the more pressing problems surrounding Europe's banks.
Spain is now a case in point. They are desperately seeking to avoid taking a bailout from the EU and IMF with the sorts of terms that have crippled Greece, Portugal and Ireland.
However, without the necessary cash, which they are reluctant to raise on the bond markets, they are taking one step closer to their own default.
The EU can't simply pump the money directly into Spanish banks as that would be completely ripping up the rulebook. What would Portugal, Ireland and Greece think if they have to take the hard medicine but Spain doesn't.
The bottom line is that the Eurozone crisis is far from over. This rebound in global stocks could easily be short lived, especially with the upcoming Greek elections and the unknowns that could potentially follow.
The FTSE 100 is back above the 5400 level this morning as the buying continues. This area is seen as a near term resistance level after we broke through the 5350 level yesterday.
The next targets for the bulls are 5480 and 5510, whilst the previous resistance at 5350 might provide support.
Stock Markets: 06 June 2012
The UK is returning from an extended Diamond Jubilee weekend where almost everyone seemed to be immersing themselves in the celebrations.
Unfortunately, little has changed and it's back to reality with a bang as the usual Eurozone crisis issues continue to rumble on.
investors are now pinning their hopes on seeing another round of stimulus from the various central banks whose up and coming meetings will be very much in focus.
The ECB will be meeting today and there are growing calls for them to cut rates from 1%.
Across the pond, the FOMC meeting later this month is seen as another major event. It is probably the last meeting that they can add more stimulus without appearing too partisan ahead of the Presidential election.
The problem is that we already know this isn't the solution. We've seen large amounts of stimulus over the past few years and, whilst it's given a short term boost, it hasn't resolved the wider problems of over-indebtedness.
The bottom line is that the current strategy isn't working and something more comprehensive will be required rather than just the delay tactics.
Whilst British investors have had an extra bank holiday, the thorny issue of the Spanish banking sector has continued to give European policy makers a headache.
In the current environment, Spain will not be able to tap into the bond markets in order get the funds needed to prop up their banks. As a result, they will need a direct injection of capital from Europe and this is what they are desperately crying out for.
Whilst the FTSE was closed, a tight ranged Dow Jones posted a slight recovery yesterday, rising 26.87 points to 12,101.08. This came on the back of an increase in the non-manufacturing business index.
It's possible that US investors avoided opening new positions ahead of today's ECB interest rate meeting.
The European sovereign debt crisis is seen as the biggest downside risk for US economic growth, as President Obama keeps reminding his voters in his bid to get re-elected in November.
The terrible NFP figure on Friday sent markets into something of a tailspin. Therefore, the incumbent President will be trying to pin the blame for this sudden turn about on all the problems in the Eurozone.
All this talk of further central bank intervention has got the FTSE excited, and so we return from the four day weekend in a bullish mood.
The index is up by some 50 points so far and is trading above the 5300 level. Some of these gains are just catching up after the weekend, but there also seems to be a reaction to the big sell off over the past few weeks.
Currently, the nearest resistance level is at 5350, so a move above here could see a test of 5400. Meanwhile, to the downside, the 5200 level remains the major near term support.
Stock Markets: 01 June 2012
Volatility is making trading conditions rather difficult at the moment. Just when you think the market is about to make a concerted move in one direction, it turns around and heads off in another.
Neither the bulls nor the bears seem to know which way the next big move is going to go and this is keeping things rather treacherous.
Yesterday saw the perfect example of this. Europe had spent most of the day in positive territory until the US released its poor ADP Payroll figures. At that point, the Dow Jones tumbled and dragged the FTSE 100 and DAX 30 down with it.
Once the session was over, with the UK index closing lower, the FTSE 100 futures immediately spiked back up again.
This morning the FTSE 100
is trading at around 5335 at the open, just higher than last night's close.
For the fourth time in just over a week, the index has bounced off the 5280/5300 level. This continues to be the major support over the near term.
The DAX 30
actually broke below its nearest support level, at around 6260, but the bigger level to focus on is 6200. The German index is currently a little lower at the open.
Interestingly, June is a month where the FTSE 100 has historically seen more falls than rises.
The declines are also far larger on average than the rises, with the month as a whole being pretty volatile.
Considering what lies ahead this month, I might favour history repeating itself.
June will see an FOMC meeting which could be the last chance for the Federal Reserve to announce plans for QE3 without it looking too 'political' ahead of the US elections. And of course there's the Greek election in just over a fortnight.
Already this morning, the yield on German bunds has hit a record low. We are now at the stage whereby investors are paying the German government to buy their debt for two years, an indication of risk aversion if ever there was one.
Let's not forget that today's economic data will focus on the US NFP. Yesterday's weaker than expected ADP number saw increased volatility and today may be no different if the Non Farms figure is also as disappointing.
In Europe, few people are willing to stick their neck on the line ahead of the data and for many European investors this will be an extended weekend. The UK, in particular, will even see a double bank holiday.
However, before we get ahead of ourselves, the UK manufacturing PMI data is set to be released this morning. This fell to 50.5 in April, just above expansion territory, and saw a much bigger than expected decline.
With a confirmed double dip recession and an escalating Eurozone crisis, there's little chance that today's number will remain above the 50 level.
Stock Markets: 31 May 2012
Yesterday saw a rout in the markets as sellers came out in force to push indices lower.
Bad news seemed to keep coming throughout the day. We saw a terrible Italian bond auction, Syriza leading a Greek poll, spiking Spanish bond yields and economic sentiment data that hit a two and a half year low.
The disastrous sentiment data would have shocked most commentators and so, when combined with everything else, investors went running for cover.
We've seen a raft of bad economic data releases this week, most of it focussing on confidence and sentiment.
It comes as little surprise that on the continent, across the pond in the US and here in the UK, consumer confidence remains in the doldrums.
In the US, there's real worry that the labour market might be coming off the boil. Whilst the situation is probably good enough to see Obama re-elected in November, it is not looking good beyond there.
The new/incumbent President will have to address the small issue of the US' monumental debt problems.
This will be a tough job as the Democrats and Republicans struggle to agree to anything. Last year even saw the US lose their triple A credit rating because of the bickering.
Europe speaks for itself really and it's not surprising that confidence there is completely shot to pieces.
For the UK, confidence has been given several blows, not least because of the double dip recession that's even worse than previously thought.
However, we also have a struggling construction sector, a Eurozone crisis that is worsening by the day and an inept coalition government that is continually shooting itself in the foot.
Furthermore, consumers are already dealing with a barrage of rising energy prices and falling real incomes which is enough to dent anyone's feelings.
At least there's a small glimmer of hope that the extended Jubilee weekend will give everyone something to cheer up about, albeit for only a few days.
This morning we had been calling the FTSE to open lower by some 12-15 points. However, a few buyers have crept in and we've actually opened in the black at 5330, up by some 35 points.
Many of our spread trading account
holders were buying the index yesterday, despite the market selling off. They were hoping for a bounce and trying to pick the bottom, and so far this morning we're seeing some of that boldness pay off.
There are lots of things to focus on today with the first one being the Irish referendum on the new EU fiscal treaty.
Ireland loves a referendum on EU treaties and, of the five they've had since 2000, only three have gone with the yes vote. Today's vote is expected to be accepted by the people, although there's a chance that low turnouts could challenge that.
On the economic data front, the focus is on the US with the ADP payroll number coming in a day later than normal because of their bank holiday Monday.
Last month's number was down on the current yearly average and today is expected to improve on 119k, coming in at 148k.
Finally there will be the 2nd release of US GDP, which is expected to suffer a similar fate to the UK's number, with a downwards revision to 2.0%.
Stock Markets: 30 May 2012
Growing hopes that Greece will vote for a pro-austerity coalition during the June elections has eased some concerns that they will exit the euro.
This helped fuel optimism across the Atlantic when they re-opened after the Memorial Day holiday.
In addition, US economic data showed signs that their housing market might have found a bottom and this encouraged a 125 point rally in the Dow Jones to 12,580.
However, consumer confidence took a hit and the Eurozone crisis continues to rage, which will keep an element of caution in the spread trading
Investors had pinned many of their hopes on the idea that Spain would be able to tap into the ECB's coffers to help bailout Bankia.
However, this has been blown out the water and now the Spanish government will have to rely on funding from the bond markets.
The EU rule books have been ripped up recently, but this time the ECB has refused to set a precedent for Spain and rightly so. How can they save one Spanish bank without directly doing the same for others?
The fact that Spain continues to claim that they don't need any external financial assistance isn't helping matters either.
Investors are simply looking back at what happened to Greece, Ireland and Portugal. Those countries made exactly the same claims before being suddenly bailed out by the EU and the IMF.
With the cost of Spanish borrowing continuing to rise, the situation for the country is quickly becoming unsustainable.
So as the uncertainty rumbles on in Europe, the FTSE continues to oscillate around the 5350 area.
The index is struggling, for the third time this week, to break above and beyond the 5400 resistance level.
The bulls are not being helped by comments from China. Apparently they are not planning any major stimulus packages to prevent their economy from falling faster than it currently is.
This is particularly poignant for the FTSE, which is heavily laden with mining and energy stocks, as these have been weighing on the index over the past few weeks.
Stock Markets: 29 May 2012
When is a bailout not a bailout? When the central bank takes all your debt on board and gives you unlimited liquidity in return.
Markets are breathing a sigh of relief because, if the ECB bailout deal goes through, Spain will not have to raise more funds to prop up its ailing banking sector.
This unorthodox attempt to place a firewall around Bankia is another sticking plaster to put on Europe's wounds. For now at least, UK spread trading
investors seem to like the idea.
The rulebook is being painstakingly ignored in a bid to save the Eurozone from collapse. However, many countries and investors are preparing themselves for what they believe to be an inevitable break up of the single currency.
The main problem is the precedent that this will set for other countries whose banks are in similar trouble.
Spare a thought for Ireland as they sit out on the far westerly part of the Eurozone. They have been taking their bitter medicine in order to get their house back in order.
At the same time, they have to sit and watch whilst other countries seem to be given extremely preferential treatment. Greece has had much of its debt written off and now Spain is seeing one of its biggest banks guaranteed by the ECB.
Yesterday the FTSE 100 struggled for direction amid low volumes, closing at 5356, as investors awaited further developments from the Eurozone.
Besides public holidays for a number of European exchanges and the US, it was the ongoing uncertainty regarding Greek elections that kept participants on the sidelines.
After all, the Greek election is widely agreed to be a significant downside risk for the UK and European economies given its potential domino effect.
This morning, European indices are back at the highs they rejected in yesterday's session, with the FTSE 100 knocking on the door of 5400.
Despite Spanish 10 year bond yields continuing to hover around 6.5%, the bulls seem to be in control as they are buoyed by the deal between Spain and the ECB.
Financial Spreads' clients bought into yesterday's reversal and they must be happy to see the little rally so far this morning.
The main test will be the near term resistance at 5400 and just above. Beyond there, the next resistance level for the bulls is seen at 5580.
Today's major highlight on the economic data front is US consumer confidence. This is expected to tick higher as petrol prices across the pond have declined a little, but this sentiment could be reversed by the recent fall in equity markets.
Stock Markets: 28 May 2012
As the month of May draws to a close, investors will remember it for the reigniting of the Eurozone crisis.
May saw the already cautious financial markets take a turn for the worse and head towards bear market territory.
The FTSE has lost 6% during May and the DAX is off by nearly 6.5%. However, this morning at least, the fears of a return to a bear market have abated with indices
starting the week in fine form.
Despite Friday's higher-than-estimated reading of US consumer confidence, it seemed events in Europe had the upper hand again, pushing the Dow Jones 76 points lower to 12,455.
Requests for help from regional governments in Spain raised concerns about the country's financial health amid ongoing uncertainty regarding Greece's membership of the euro.
So, ahead of a holiday weekend in the US, investors avoided taking any chances and left the relief rally for another day.
Today is Memorial Day in the US, so stock markets across the pond are closed and we can expect low volumes as a result.
The next few weeks will see a lot of bank holidays in various countries, including the double bank holiday for the Jubilee, so volumes may struggle as the summer gets underway.
The FTSE has already made a visit back above 5400 this morning. The index is looking in good shape for a week that will see a plethora of economic data releases.
These early gains are down to the latest poll from Greece, which has shown a high percentage of voters are willing to give pro-bailout parties a chance. This seems to be because the vast majority of Greeks would rather stay in the euro than leave.
The prospect of an exit isn't very appetising for Greek voters as they appreciate that a return to the Drachma will be a very painful experience.
Yet the risks of the Eurozone crisis escalating further still remain very apparent, with Spanish ten year government bond yields reaching 6.4% this morning.
The money the government is throwing at Bankia is making investors nervous that the sovereign will soon need a bailout out if their yields carry on ticking higher.