Stock Market Update 9 November 2012

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Stock Markets: 09 November 2012

Markets remain understandably nervous, with the US fiscal cliff looming on the far side on the Atlantic and, despite what the ECB President says, the Eurozone crisis continuing on this side.

Following yesterday's inaction at the ECB meeting, Draghi's press release comments were so extraordinarily bullish that most analysts and economists were taken by surprise, with many rebuffing such claims.

Many would argue that he may be a little deluded to be as bullish as he was, almost claiming that the Eurozone had turned a corner.

The only evidence of that was yesterday's successful Spanish bond auction, which means that the country has wrapped up their funding requirements for 2012.

The problem is that this almost certainly rules out a bailout request this year and so the news was actually one of the precursors to the sell off, at least for the euro-dollar.

With unemployment still rife throughout Europe, and only set to get worse, the economic prospects remain challenging.

This is stifling any prospect of a pick up in demand as those actually surviving in work or businesses are deleveraging or hoarding their cash.

The expectation continues to be that Spain will succumb eventually and, the longer they put it off, the more nervous financial spread trading investors will become.

Already this morning, the 10 year bond yields on Spanish and Italian government debt are creeping higher.

Whilst European markets are trying their best, the overriding problem is that the bulls are reluctant to jump in just in case things will be cheaper in a matter of days or even hours.

This morning, the FTSE is currently trading just about flat at 5772, while European indices are in the red, with the German DAX falling worryingly quickly to 7178.

Even strong industrial production data from China has done little to ignite any interest from the bulls, who really seem to be in the minority right now. It's amazing to see how quickly sentiment can turn.

Also see today's feature update Time for a Spanish Bailout - Part II.



Stock Markets: 08 November 2012

Yesterday, the Dow may have nosedived by over 300 points, breaking below the crucial 13,000 level, but a bounce off its lows means that we are calling the FTSE to open higher by some 20 points.

The FTSE's own fall yesterday puts the near-term support areas in focus around 5765/35/05.

On the upside, resistance is seen at 5860 and the recent highs of 5920, which does seem a long way off at the moment.

Central banks will be in focus today when the BoE and ECB to decide on interest rate policy.

Neither is expected to do anything, however, in the case of the BoE it will be a close call as to whether they extend their asset purchase program.

Also see today's feature - The US Fiscal Cliff.



Stock Markets: 07 November 2012

Whilst President Obama gets re-elected, the US looks likely remain deeply indebted for the next 4 years. On this side of the Atlantic, we continue to have our own headwinds as evidenced by the UK's industrial and manufacturing production numbers.

These figures were worse-than-expected, meaning that the first reading of Q3 GDP might be revised down from the impressive 1.0% that it recorded a couple of weeks ago.

Today is also expected to see the Greek budget vote and, even though peripheral Eurozone bond yields have fallen this morning, the early rally in equities looks to be fizzling out already.

We had called the FTSE to open above 5900 but, whilst it did start just above there, it has now pulled back to 5890, up by only a handful of points.



Stock Markets: 06 November 2012

Spread trading investors remain apprehensive ahead of today's polls in North America, where some predictions say Romney but others say Obama.

It's too close to call and the worst case scenario would be a repeat of the Bush/Gore shenanigans with recount after recount.

A clear result at the earliest possibility would be welcome so that whoever is elected can deal with the fiscal cliff as soon as possible.

We have already seen US businesses holding back on 2013 investment because of the looming cliff, and who can blame them?

If you were faced with a politically-inspired recession just round the corner then you wouldn't want to start hiring people or investing in new stock or machines.

Either the can needs to be kicked down the road again or a deal needs to be cobbled together quickly in order to avoid a detrimental effect on growth.

The problem with such a close race is that a Romney win could lead to more confusion about how the fiscal cliff will be dealt with.

He wouldn't actually take office until next year and so we would probably see some desperate political battles resulting in a postponement of the major decisions.

On top of the uncertainty in the US, there are more issues on the continent this morning as the EU has cut its 2012 GDP forecasts for Spain.

In the past few days, the bond yields for the likes of Portugal, Spain and Italy have been creeping higher again, making stock market bulls reluctant to get too involved. In addition, yesterday's PMI data from the UK was rather disappointing.

The Dow managed to put in a half decent performance yesterday considering all the clouds of uncertainty surrounding the Presidential elections.

The US index gained some 6 points to close just above the 13,100 level and so European indices are just in the black at the time of writing.

The FTSE is tracking sideways at 5850 as it looks like investors are just going to sit on their hands ahead of getting the election result from across the pond.



Stock Markets: 05 November 2012

We are nearing crunch time for the US Presidential candidates, with just a day to go before polling ends, and it's shaping up to be a very close race.

Indications are that Obama might just sneak back in, but whoever does win will have to run a completely divided country and make decisions that could affect it well into the future.

Of course, the biggest immediate issue will be how to deal with the so-called fiscal cliff on 1st January next year. This is when a raft of tax hikes and spending cuts will automatically come into effect unless the parties can come to some other agreement.

As a result, the best result for the US might actually be a Romney win as he doesn't officially take office until the end of January, meaning that the deadline could well be postponed.

If Obama remains in office then it'll be the first big challenge of his second term. Even after these elections, the Republicans are likely to maintain their majority in the House of Representatives and they will not make life easy for him.

For now, the political uncertainty surrounding the US vote seems to be causing hesitation amongst investors and hampering the financial markets.

We are currently seeing weakness across the major European indices after the US saw a sharp reversal on Friday despite much better-than-expected Non-Farm Payrolls data.

In the blink of an eye, the Dow Jones gave back all of Thursday's gains even though US stocks had looked liked they would build on their recent lows and make a concerted move higher.

The 13,000 level remains a major support level for the Dow but we are already calling the index to open lower by some 30 points this afternoon.

At the time of writing, the FTSE 100 is at 5845, but the index has been lower by a further 20 points and so is attempting to claw back some of the morning's losses.

Near-term support and resistance is seen at 5825/00/5745 and 5890/5910/25 respectively.

Economic data this week comes in the form of today's services figures and then the central bank decisions from the BoE and ECB later in the week.

The UK services PMI survey is due to post a figure of 52.0, down slightly on the previous month but still in expansion territory.

Then, from the US this afternoon, their non-manufacturing data is also expected to see a small fall from the previous month, slipping to 54.5.



Stock Markets: 02 November 2012

Stock markets enjoyed a strong bounce yesterday following the strong ADP employment data and some decent, though weaker-than-expected, US consumer confidence numbers.

However, despite the big jump in the Dow, this hasn't translated into gains for the FTSE this morning. This comes from the fact that the US gains came early on in their session whilst the European indices were still open and able to react.

At the time of writing, the FTSE is 10 to 15 points lower at the 5850 level and it may remain here ahead of this afternoon's Non-Farm Payroll data.

Expectations are for a figure of 125k, with the unemployment rate possibly ticking back up to 7.9% from 7.8% following that substantial fall last month.

This is going to be a very interesting figure purely because no incumbent President since the 1930s has been re-elected when unemployment has been above 8%.

A move above this level could be a very bad omen for Obama but, regardless, the US will be fully into election mode after today.

Also see today's feature How Much Will the UK Retail Model Change?



Stock Markets: 01 November 2012

Yesterday, as the Dow returned to normal trading, there was a distinct lack of bulls around to lift the sodden markets.

The index ended the session 10 points lower, taking it to the 13,096 level, and just about seems to be holding onto the 13,000 mark for now.

This is acting as a major support area for the index, as it did at the end of August before a bounce to the 13,600 area, but a break below here could pave the way for further weakness.

Across this side of the Atlantic, the FTSE 100 has slowly but surely improved since the open, knocking on the door of 5800 at the time of writing. However, this is hardly an indication of investors rushing back into the market following yesterday's decline.

One would usually expect spread trading investors to be happy to see last night's better-than-expected Chinese manufacturing data, but even this doesn't appear to be exciting the market.

There are a couple of interesting pieces of economic data out today, starting with the UK's PMI manufacturing figures.

These are due to remain roughly flat at 48.4, still below the 50 expansion mark, suggesting further contraction.

At lunchtime, there will be the US ADP employment data, which is expected to show a rise of 135k and can sometimes move the market if the figure is significantly off market estimates.

Finally, we will see the postponed US consumer confidence figures, which are due to show a rise from 70.3 to 72.5.

Also see today's feature Conservatives Rebel Against Rising EU Budget.



Stock Markets: 31 October 2012

The last few years have been torrid for the City, but even more so for investment bankers.

Excessive risk taking, disproportionate remuneration and rogue traders have made the investment banker one of the most hated professions that exist today.

People would almost rather have a traffic warden round for dinner than an investment banker, but at the rate things are going there may not be many of them left.

Good riddance many people might say and, in the case of excessive risk taking, many of the changes to the investment banking industry are welcome. However, this transformation is causing many more job losses.

UBS has recently announced a further 10,000 jobs are to go in their global investment banking division, whilst Deutsche Bank also swung the axe in the summer.

Barclays, which had spend the last few years building an investment banking force to be reckoned with, is shifting its focus away from the 'casino'.

UBS is a particularly interesting case though as, just around the corner from us in the City, they are having a new state of the art office built to house all their London operations.

This will include four football pitch sized trading floors and it will be interesting to see if they have any traders left when they come to fill the office in a few years time.

This morning, the rebound in European stocks looks to be continuing, with the FTSE trading at 5860, adding some 10 points onto yesterday's gains and reversing our earlier calls for a negative start.

With the US markets set to resume normal trading, we should at least see an increase in volumes. You can imagine that many US traders will be chomping at the bit after being kept away from their desk for an extra two days.

At the time of writing, we are calling the Dow Jones to open 70 points higher than its Friday close, so it will be interesting to see whether those gains are sustained.

October has been a funny month for the financial markets, commencing with good strength, then weakness, then a tentative test of the year's highs, then weakness and now another burst of strength.

Volatility may have picked up a little, which is no surprise for the month of October, but overall the FTSE is slightly higher and the Dow is slightly lower.

With November just around the corner, we are entering the two most historically bullish months of the year, and many will be hoping that history repeats itself.



Stock Markets: 30 October 2012

Following earlier calls for the FTSE 100 to open lower, we reversed our quote as it looked like things might perk up.

In fact, the index performed even better than we had expected, heading some 40 points further north to 5835 and catching a few clients off guard.

Positive news from both a macroeconomic and corporate point of view has given the bulls a little bit of a boost this morning.

Firstly, overnight we saw the world's addiction to money printing continue as the Bank of Japan announced QE9, mere weeks after QE8, in a desperate bid to prevent a recession.

Unfortunately, the world's third biggest economy has suffered from a dearth of exports recently as their relationship with China has deteriorated. As it stands, the Chinese are simply not buying Japanese goods.

If ever there was an example of a central bank that is wedded to stimulus measures, the Bank of Japan is it.

Other central banks may easily follow their lead, thinking that if they can do it, so can we. This means that there's every chance that more stimulus could come from the BoE, ECB and Federal Reserve in the months and years to come.

The second piece of good news actually comes from Spain; Spanish Q3 GDP was better-than-expected, coming in at only -0.3% rather than -0.4%.

Despite all the recent Spanish woes, their export data has been relatively surprising and this little improvement is getting the bulls rather excited.

Whilst it acts as a reminder that Spain remains in a deep recession, it also puts the country back on the radar as investors attempt to second-guess if/when they will request a proper bailout.

For now that date looks to have been pushed back and, assuming it does come, it may not be until 2013.

Finally, some good UK corporate earnings have also contributed to the FTSE's bullish move.

BP has far exceeded expectations and other UK firms such as Imperial Tobacco and Standard Chartered have also impressed investors.

Good news has been quite rare in today's market, so let the good times roll whilst they can.



Stock Markets: 29 October 2012

'Frankenstorm' is on its way to batter the US east coast at an ominous time for President Obama, with just over a week to go before the election.

The storm could actually work in his favour if he shows better leadership in dealing with potential damage than his predecessor did after Hurricane Katrina devastated New Orleans.

Assuming that this is the case, and with the economic data going his way, he might just have it in the bag.

Of course anything can happen over the next few days, but the recent fall in US unemployment and surprise jump in GDP may be enough to persuade the floating voters that they are better off with the incumbent.

Having said that, many will not be swayed by the headline figure, instead noting that the GDP data was given a significant boost by government spending which grew at its fastest pace for three years.

Strip this out and, whilst you would still see growth, the data isn't quite as good as the initial figure suggests. This is particularly true given that interest rates have been at historic lows for years and the Federal Reserve has been splashing its cash around.

As Hurricane Sandy moves up the east coast of America, we are likely to see very low volumes today, and possibly tomorrow, as US stock exchanges batten down the hatches. Instead, most people will be working from home or other locations rather than New York.

At the end of last week, the Dow posted a slight recovery, gaining 24 points to 13,116, as investors squared some of their previously established short positions.

The American Q3 corporate earnings season has painted a mixed picture, so Friday's Non-Farm Payrolls data could help define a clearer direction.

Meanwhile, here in the UK and Europe, we're off to a negative start for the week, with the FTSE down by some 15 points to 5790 at the time of writing.

The negativity of the past few days seems to have come to a halt after the index bounced off the 5750 level on Friday, just as it did earlier in the month.

As a result, the key near-term support and resistance levels are 5750/35/15 and 5825/35/55 respectively.

Over the medium-term, the double top that's formed around 5935 is a worry for the bulls and will be a major resistance area for them to overcome.


By Simon Denham, 9 November 2012


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