Stock Market Update 9 December 2011

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Stock Markets: 09 December 2011

After closing at 5483.7, its lowest level in more than a week, the UK 100 index looks set to mimic losses in the Wall Street and Asian markets today with disappointing news coming from the EU summit.

Data released yesterday also showed China's annual inflation rate dropped to 4.2% in November, the lowest level in more than a year. This heightened expectations of more monetary policy easing to fight the worsening global economic issues.

Not only this but a much steeper drop in producer inflation to 2.7% in November, down from October's 5.0%, showed that the Chinese economy is hastily losing speed.

Today's domestic data releases from the UK come in the form of British wholesale inflation, released at 09:30 London time, with British trade figures at the same time.

From across the Atlantic, US international trade numbers are being put out at 13:30 and the preliminary December Reuters/University of Michigan consumer confidence survey is released at 14:55.

Stock Markets: 08 December 2011

The European trading session gets underway and all eyes will be on the summit that gets started today.

It's being billed as make or break for the survival of the EU in its current form. Politicians will attempt to impose a deeper fiscal union amongst the member states and try to put an end to the escalating debt crisis.

The problem is that it's yet another question of 'haven't we heard this all before?' The Cannes G20 summit only a few weeks ago was supposed to be the make or break deal for the EU but that ended in a damp squib. It was followed by pleas to emerging economies to assist in beefing up the EFSF's firepower, to which they simply said no.

Even though the task faced over the next couple of days to pave the way for a new Europe is almost insurmountable the markets continue to remain positive about the prospects for equities.

US shares markets remained well supported overnight and yesterday's sell off in Europe, which followed reports that the proposal to combine the EFSF and ESM was rejected by Germany, was very short lived.

In fact most sell offs so far this month have been short lived showing that investors are buying the dips and the bulls seem to be happy with the prospects for equities into the year ahead.

They are brave bulls indeed as there's still a huge amount of bearish sentiment out there and belief that this year's Christmas rally, if it continues, could be met by substantial barriers in the New Year.

It's still difficult to get too excited about stocks when the outlook for growth is so bleak and the threat of another recession is still very much apparent.

So the FTSE spread betting market is floating around in positive territory at the moment trading at 5565 at the time of writing.

Yesterday's weakness saw the index dip back to 5500 but as mentioned this was for a very short time before recovering in conjunction with the strength from US stocks.

You get the feeling that US investors are brushing aside the concerns surrounding Europe at the moment, but they will be sure to be keeping a close eye on proceedings of the next couple of days.

Levels to watch remain the same as they've been for the last couple of days with near term resistance at 5675 and 5720 and support at 5490/20 and 5350.

Trading might be slow ahead of the central bank meetings today with the BoE first and then the ECB. The ECB is seen as the more important one as a cut of 0.25% is expected with the new President unwinding the tightening done by his predecessor.

Given the ongoing turmoil there is a slim chance of more of a cut to take the base rate below the 1% level but this might spook the market.

The statement that follows the decision will also be closely listened to in order to see what more Mr Draghi has to says about a possible increased role for the ECB.

Stock Markets: 07 December 2011

We have seen European government debt yields begin to fall in recent days as investors gain confidence ahead of the EU summit at the end of the week.

This has improved investor sentiment and helped to boost stock market indices across Europe, with the FTSE 100 up 2% in December alone.

Currently the FTSE 100 is trading at 5625 and technical analysis suggests that the near term resistance levels are 5650/75 and then 5720.

Stock Markets: 06 December 2011

US markets reacted negatively to credit rating agency S&P's announcement that they've got all but two of the Eurozone nations cards' marked for a possible downgrade within three months.

This has had a knock on effect for European markets this morning, in particular the DAX 30, as a bit of selling tests the metal of the bulls.

It comes as little surprise that S&P has taken to carpet bombing Eurozone members as it'll hopefully be the kick up the proverbial that European leaders have needed.

Over the past few weeks bond auctions have hardly been impressive and in the run up to Christmas there's almost another €20 billion or so of German, Italian and Spanish bonds to flog to investors.

We have to remember as well that the coveted triple A rating effectively means that your assets are a risk free asset. All the S&P has done is to call that into question for the six Eurozone nations that still have one.

Remember the sub prime days not all that long ago when triple A ratings were dished out left, right and centre? Ratings agencies still need to build back confidence and a move like this simply attempts to build that confidence back.

In time we'll see whether EU leaders can persuade them to rethink following the outcome of this week's summit.

Already early on we're seeing a bounce from the FTSE, which was called at one point to be opening almost as low as 5500. This early bounce shows that many financial spread betting investors are happy to brush aside the comments from S&P and continue to look ahead to Thursday and Friday where expectations are building.

At the time of writing the FTSE is trading at 5570 on the indices spread betting markets, having now eradicated all of its losses from the open.

Stock Markets: 05 December 2011

This morning it seems that we are clinging onto last week's gains.

At this stage it's purely a continuation of last week's bullishness as investors look ahead to this week's crunch EU summit believing that politicians won't fall short this time because the ramifications of inaction are far too great.

December is also historically the most bullish month of the year and so those fund managers who've struggled to perform will not want to miss out on any potential rally into the year end.

The UK 100 has commenced the week in relatively a bullish mood just putting itself in the black although it's hardly a convincing rise.

We're only just clinging onto gains at the moment but it's better than where we thought we'd start back on Friday night when US markets ended the week on a small downer.

You won't be surprised to hear that the main highlight of this week is an EU summit to be held on Thursday and Friday where greater fiscal integration is expected to be proposed.

Not another EU summit I hear you cry. What can they possibly do to provide a definitive answer to the whole Eurozone crisis that they couldn't already have proposed at the previous ones?

Well this one is largely seen as being the be all and end all summit, with the markets hoping for the big bazooka, namely the ECB, having a greater role in ending the crisis once and for all.

The coordinated action from central banks last week has been complimented by lots of announcements of austerity measures over the weekend.

Italy and Ireland are the latest to announce their measures to reign in their debt which in Ireland's case is yet another round.

They are the only country to prove that austerity can work. Unfortunately for them however, their deficit was so large that another dose of austerity was always going to be needed and this can't be ruled out for other EU members too.

In the run up to this week's summit it's hard to see index spread betting markets doing much unless there's a surprise to catch us off guard such as the central bank move last week.

This was the main contributor to the rally we've seen thus far this month and, with the UK 100 trading at around 5560 at the time of writing, there's lots of near term resistance levels. These resistance levels are seen at 6515/50/85 and to the downside support is seen at 5490/00 and 5340.

Stock Markets: 02 December 2011

Anyone would be amazed to see the rally in equities this morning after having read the headlines of most newspapers today.

Full of doom and gloom and the possible cost of a Eurozone break up to the British economy, investors are brushing that risk aside and pushing the indices higher. It looks like the Christmas rally could be getting underway in earnest.

Fund managers who have had a tough ride this year will not wish to be missing out on any potential upside.

Even though the macro economic picture still looks shaky and uncertain, to many people the shares spread betting markets look cheap from a historical earnings perspective.

There is also the chance that European leaders will actually get somewhere before the year end, as the situation is getting evermore serious.

There are hints that expectations of a resolution to the crisis are rising following the big drop in ten year government bond yields for the likes of Italy and Spain this week.

In addition there has been the continued bounce in equities coupled with the fact that they simply have to do something otherwise the Eurozone in its current form is doomed. Any break up would have ramifications beyond what most people can possibly predict.

This morning's strength from the FTSE has taken not only clients by surprise, but us as well since we were only calling the index to open higher by some 30 points. Gradually, however, as we approached the open, quotes were bid higher and so now were sitting comfortably in the black with an almost 1.5% jump to 5565.

The move higher in the last few days has caught quite a few bears off guard. In fact, over the short term, as markets continue to rise, things are starting to look even more bullish from a technical analysis point of view.

For the FTSE levels around 5600 are now in view, with resistance near term seen around 5615/50.

The 5650 area is a really major resistance level over the medium term too as that's where the 200 day moving average is where many European indices failed on the last attempt.

The Dow is now back above its own 200 day moving average so this might be a case of European indices simply catching up with their US counterparts.

All eyes are on the Non Farm Payroll number where analysts rushed to readjust their forecasts higher following Wednesday's bumper private ADP payroll number.

Expectations are for a figure of 125k due to initial jobless claims that have been trending lower recently, although yesterday's number bucked that trend, and there are signs that the US's services sector is healthy and recruiting.

Stock Markets: 01 December 2011

Spread betting markets remain in bullish mode this morning albeit not as much as yesterday in the early stages of this session.

US indices spread betting markets continued the party for the bulls into the night, rising over 4%. This brought the Dow back above the 12,000 level and to levels not seen since the last big rally during the month of October.

Many people are calling the current move a short covering rally, however at this time of year it'll be a brave investor to stand in the way of a possible Christmas rally.

As we commence the final month of 2011 few will want to go back over what has been a tough year for almost everyone, but when you've got the bulls charging little can stop them.

Last night's move in the US had its affect on Asian markets and that has followed through to European equities this morning.

At the time of writing the FTSE 100 is trading at 5520 up by some 15 points from yesterday's close and naturally our spread betting account holders have been selling into the strength. Short positions in the FTSE index have been building up yesterday afternoon and overnight.

Lots of good news to focus on yesterday with not only the coordinated action from central banks to boost liquidity but the private payroll figure from the US was way above expectations.

This was followed by a very good manufacturing data which has given the bulls more cause for optimism ahead of tomorrow's final Non Farm Payroll of the year.

The move by central banks yesterday for some was seen more as a sign of desperation and something to be worried about rather than good news. You have to ask yourself just how close are some of Europe's banks to going under to cause such a move.

Only a couple of days ago a record amount of bank deposits were placed with the ECB as opposed to sitting in other banks, showing just how much the money markets were starting to freeze over.

This morning's strength also comes as a bit of a surprise when PMI manufacturing data from China declined for the first time in three years. Those clients who've sold into the FTSE are probably hoping this will lead to some sort of pull back.

Stock Markets: 30 November 2011

Downgrades to some of the world's major banks by the S&P last night knocked Asian markets for six and that's feeding through to European stock market indices this morning.

We've been calling the FTSE to open lower by some 35 points throughout most of the night and at the time of writing as the market opens up we are at 5285.

For the FTSE, support and resistance is seen at 5240/5195 and 5340/60, 5420 respectively over the near term with the recent rally now being called into question.

Over the slightly longer term things are still looking rather on the negative side with major support since at 5040/4960/4800 and resistance at 5600/5735.

Stock Markets: 29 November 2011

Lots of hype surrounding the Chancellor's Autumn statement today but in reality he cannot do much without going back on his plans to reduce the deficit.

Unfortunately for him the lack of growth in the past year and downgrades expected for the years ahead are going to mean that we'll not see the coalition's targets of deficit reduction met until after the next general election.

The fact that the bond markets have continued to give the Chancellor the benefit of the doubt and even reduced his borrowing costs is an encouraging sign that financial markets believe he is taking the right course.

Even though the cuts to government spending are in reality a drop in the ocean considering the size of the public sector, those who continue to oppose the coalition's plans remain oblivious to the reality of the tricky situation we find ourselves in.

One of the options open to the Chancellor today is to wave his magic borrowing wand and go for what the opposition call a "plan B" ie borrow more in order to boost growth via government investment.

Now this sounds like a good idea at a time when the economy is struggling, however by borrowing more you are simply brushing the problem under the carpet as opposed to having a proper go at eradicating it.

The bonds markets would not be happy about the UK suddenly borrowing more and they would push our yields higher digging us into an even bigger whole.

Another option is to ramp up taxes, but this would be desperately unpopular and definitely cause us to dip back into recession due to the negative impact on production and demand.

The only other option is to stay the course and do a bit of tinkering here and there, getting the private sector more involved and try to boost lending to business. Unfortunately, this is not the bazooka that the UK economy so desperately needs, but there's little other option.

In spread betting, the FTSE 100 is just taking a breather this morning following two days of decent gains.

The big push higher yesterday was complimented by US markets which sustained their big rally higher so earlier we were calling the FTSE to open higher but we are just in the red at the time of writing at 5300.

Stock Markets: 28 November 2011

A rare Monday where markets are starting in bullish mood as the gain for the FTSE so far this morning is around 1%.

Needless to say banks and resource stocks are amongst the gainers having been heavily sold off in the past few weeks. Investors are also feeling a little bit more bullish following last Friday's bumper shopping spree.

In the US, Dow futures are 1.5% higher ahead of "Cyber Monday" where the spending is due to continue as consumers scour the internet for seasonal online deals.

For European spread betting indices the price action seen at the end of last week might be seen as a bullish signal and that the reversal of the recent weakness is underway.

The daily candlesticks for Wednesday and Thursday formed a doji star and then Friday and today have complimented that formation with some rallies.

This also coincides with the month of December which is almost underway and we all know what happens in December for equity markets or at least what has happened more often than not in the past. A bit of bullish fever seems to be sweeping through the markets for now, but the big question is whether it can last.

The FTSE 100 market is firmly back above 5,200 and has been rallying throughout the morning taking it to 5250 at the time of writing.

This has been a very welcome move for the Financial Spreads clients who were quite long of the FTSE 100 going into the weekend.

The rally, from a fundamental point of view, is being assisted by rumours that the IMF are concocting some sort of elaborate bailout plan for Italy, as well as the eurozone stepping up a gear and exploring the idea of the ECB playing a critical role in sovereign debt intervention.

Either way the little pieces of information are enough to get investors excited that European leaders are exploring all avenues, despite Germany's hard stance towards making the ECB the lender of last resort.

If any of these rumours regarding the ECB are substantiated then equities really could fly. If not, then it'll be a case of we've heard it all before and the spread betting markets could come crashing back down again.

By Simon Denham, 9 December 2011

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