Stock Market Update 12 October 2012

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Stock Markets: 12 October 2012

If the current crises hadn't already seen 'growth' become a buzzword within the financial markets, it certainly would be now.

Growth is being mentioned in the headlines on a daily basis as central bankers and senior economic forecasters call for politicians to address the problem.

If nothing is done then many of the world's biggest economies will be back in recession, assuming that they aren't already.

Calls for a slowdown in the pace of austerity are becoming louder as we are in real danger of seeing many developed economies simply flat-lining.

However, a flat economy is generally far better than the worst case scenario of a recession.

For the UK at least, whilst the economy is definitely in the flat-line camp, jobs are still being created and our service sector is still expanding.

The main concern is that business and consumer confidence will continue to be damaged if the economy keeps shifting in and out of recession.

Job creation may begin to falter if there's no light at the end of the tunnel in terms of real growth prospects, rather than just money printing.

If the new measures to free up bank lending rules actually work, then that could at least be one boost to the economy. The results will be interesting to see.

Over the past couple of weeks, the index spread trading markets seem to have been stuck like a rabbit in headlights.

The strong rebound since June is faltering and yesterday's strength in European indices did not rub off on the Dow.

The US index did initially rally following a report by the US Labour Department that indicated a 30,000 drop in unemployment benefits.

However, that optimism didn't last long as investors remain concerned by the slow US growth rate, the turmoil in Europe, and China's struggle to expand at a double-digit rate.

As a result, the US stock market slipped and the Dow ended up in the red, closing lower by 20 points at 13,326.

The US markets' reluctance to test their 2012 highs is starting to test the nerves of the bulls.

With so many negative headlines out there at the moment, it's hard to get excited about stocks, especially since the US earning season has not exactly got off to the best of starts.

In Europe this morning, the Dow's retreat has filtered through and so we are in the red at the time of writing.

However, the UK spread trading markets are not down by too much, as the FTSE is currently just 15 points lower at 5815.

All eyes will be on the near-term support and resistance levels, at 5800/5790/5775 and 5845/60/80 respectively, to see if a break in either direction can turn into something more extended.



Stock Markets: 11 October 2012

The recent run of bad news is really starting to take its toll on stock market investors, who are struggling to see the light through the trees.

This morning, Spain is suffering from yet another downgrade to its credit rating and this is sending its 10 year government bond yields back up towards 6%.

Across the pond, US indices took another hammering last night. The Dow Jones recorded a second triple-digit fall in a row, its third consecutive decline, and slumped to the 13,350 level.

Investors were spooked by both the persisting fears over the Eurozone and concerns about the economic slowdown in China.

This was echoed by a shaky start to the third quarter US earnings season. Bellwether aluminium producer Alcoa announced some disappointing forecasts, whilst Chevron saw a 'substantial' fall in profits compared to the previous quarter.

Investors were then kicked whilst they were down as the Fed's Beige Book showed that consumer spending is barely improving.

What's worrying for US investors is that such a nervous start to the earnings season is often followed by more of the same.

Since US markets have been almost defying gravity of late, many are calling for an even greater downside correction than we've already seen.

With austerity still being imposed in most of Europe, and the US not having started any sort of spending cuts, it's little wonder that the IMF has been calling for the measures to be reined in.

Growth is going to be very hard to come by as all economies are suffering the same fate.

Despite the doom and gloom in this morning's headlines, the FTSE is in a remarkably perky mood as the bulls attempt to reinvigorate some sort of upward momentum.

The index is 10 points higher at 5785, so hardly storming ahead, but we had been calling it a lot lower at the open and we did commence the session in negative territory.

With another quiet day on the economic calendar, the FTSE may find that thin volumes encourage a fairly narrow session.

Near-term support and resistance for the index is seen at 5760/45/25 and 5820/35 respectively.



Stock Markets: 10 October 2012

Yesterday's gloomy predictions sent the Dow Jones tumbling, with a triple-digit loss taking it back below the 13,500 mark.

At least there was a bright spark from Alcoa. After the US close, the Aluminium miner kicked off the earnings season with a rise in revenue.

Unfortunately for them, it's a case of 'revenue is vanity and profit sanity' as they reported a loss compared to profit in the same period last year, citing the ever slowing Chinese demand.

This morning, the FTSE 100 has done well to recover from our earlier negative calls.

The index is currently hovering around 5800, which is only 5 points in the red, whereas we had been calling it to fall by some 30 points before the open.

Near-term support and resistance for the UK stock market index is seen at 5780/65/35 and 5825/35/50 respectively.

Also see today's feature: IMF Growth Forecasts Cause More Doom and Gloom



Stock Markets: 09 October 2012

The IMF's downgrade to global growth is not what anyone wanted to hear right now.

Of course, this is particularly true for the UK's coalition government who are insistent that they are sticking to the path of austerity.

Following on from Gorgeous George's defiant speech yesterday, we can expect more of the same from our Dave tomorrow. He is likely to reiterate the importance of holding firm and not changing course.

It seems that the coalition simply refuses to consider any change of tack for fear of being seen by the electorate as indecisive and weak.

What is surprising is that this government has already made more U-turns than most care to remember and the public are used to seeing them change their minds.

If a policy announcement is unpopular and needs a rethink then it shouldn't be forced on people.

If global growth continues in this downward fashion, and consequently knocks us into an even deeper recession than we are currently enduring, this period of malaise for the UK economy may actually feel like a boom.

At that point, the pressure really would be on for the coalition to switch to plan B. However, if plan B involves borrowing more to boost growth then it will all have come too late, especially if the Eurozone is in trouble, let alone the global economy.

Earlier this morning, the FTSE futures were higher as investors took the IMF downgrades to Chinese growth forecasts as a sign that more stimulus was imminent.

Asian stocks, such as the Hang Seng and China Enterprises index, were boosted by the news and Australian mining firms were also popular as copper prices rallied.

Unfortunately, it hasn't taken long for these gains to be reversed, and the FTSE is now in the red by some 10 points at 5830.

Today marks the unofficial start of the third quarter earnings season in the US.

Financial spread trading investors seem to realise that corporate debt levels are still elevated and economic uncertainty remains a key risk for many firms.

Yesterday, the Dow Jones lost a handful of points, to finish at 13,580.

This came as the IMF cut its Asian growth forecasts, however, volumes were woefully thin as the US was on holiday for Columbus Day.

At the time of writing, we are calling the Dow to open 30 points lower at 13,550. It will be interesting to see whether the returning traders can spur the US markets back to life.



Stock Markets: 08 October 2012

As the annual Tory party conference gets underway, the PR machine will be working hard to recover from some of the worst political gaffs ever made.

The problem for the Tories is that they are being increasingly seen as the party of the rich, particularly following the reduction of the 50p rate in the last budget.

Now that the headlines are full of the news that they will not back a 'mansion tax', the average voter is likely to think they are looking after their wealthy friends rather than ordinary people.

The reality is that such a tax isn't hugely fair as it will also penalise people who have assets that place them into a 'high wealth' bracket, but do not necessarily have an income to match.

Slapping up their council tax doesn't mean you're getting the rich to pay their fair share, in order to do this you need to look into the many loopholes that allow them to pay no tax at all.

A mansion tax is by no means the best way to get highly affluent people to pay more tax and any such measure would not actually bring in meaningful amounts to help reduce the deficit.

Such vote grabbing tactics are usually just that; they would do no good for the UK coffers but they might make the less well off feel better about the government.

Across the pond, Friday's Non-Farms data saw the rate of US unemployment fall to its lowest level since President Obama came into office in 2009.

This has not only done the President's re-election prospects the world of good, but it lifted the Dow Jones 40 points higher to 13,610.

Nevertheless, the positive employment news now seems like a distant memory. The Dow's early gains could not be sustained, with the index pulling back from its highs, as the usual macro economic concerns came to the fore once again.

The up and coming third quarter earnings season, which is due to start later this week, will be a key focus point for CFD trading investors. They will be sifting through the results to assess exactly how corporate America is surviving in a lower growth economy.

The result of the Dow's late pull back is that European markets have got off to a negative start to the week.

The FTSE is currently trading at around 5820, down some 50 points.

The speed with which the FTSE has fallen from the dizzy heights of 5880 highlights exactly how the bulls are struggling to keep any momentum going.

Near-term support and resistance levels are seen at 5790, 5730 and 5890, 5900 respectively.



Stock Markets: 05 October 2012

A bout of risk appetite has run through the markets in the past 24 hours, particularly in terms of sentiment towards the single currency.

The fact that the EUR/USD market has moved back above $1.3000 is an indication that traders are readying themselves for a Spanish bailout.

Many investors seem to think that it's only a matter of time before Madrid calls for aid. This view is supported by the fact that yesterday's Spanish bond auction was not a huge success.

Nevertheless, today's focus is not on Europe, but on the world's biggest economy; today is Non-Farm Payrolls day.

Earlier this week, the ADP private payroll figure came in much better-than-expected and this has helped boost expectations for today's data.

Having said that, investors should be careful of getting too excited. We saw exactly the same scenario last month, with a strong ADP number, only for the NFP to come in much worse-than-expected.

This threw a bearish spanner in the works and stopped the Dow Jones in its tracks. However, since then, the index has brushed the data aside and is pressing on its 2012 highs.

So has the Dow gone too far? Our clients certainly seem to think so. Overall, they are continuing to oppose the upward trend, selling into each rally and clearly hoping for a pull back from these highs.

Today's NFP is expected to come in at around 115k, but there are quite a few bullish predictions out there for a figure of 150k.

This doesn't seem so optimistic when you consider that the initial jobless numbers have been improving and, sooner or later, the ADP figure has to influence the NFP.

As mentioned, the Dow continues to march higher, with the market adding a further 80 points yesterday to settle at 13,575. This came after better-than-expected data on factory orders and jobless claims.

It's also possible that signs of coordination in monetary easing by the world's central banks might just convince investors that a slowdown can be averted.

For European indices, the knock on effect of the US strength is that they are mostly in the black this morning.

At the time of writing, the FTSE is at 5840, up just a handful of points, but we might see little action ahead of the NFP at 1:30 London time.



Stock Markets: 04 October 2012

European indices have started in decent fashion, although they are currently retreating a little from their highs.

The FTSE is trading at 5830 at the time of writing, up a mere 5 points, and whilst our spread trading clients remain bullish of the UK index, it's not by much.

Meanwhile, account holders remain heavily bearish of US indices, continuing to sell each time the Dow ticks higher.

Also see today's feature: European Manufacturing and Services Data Looks Dire.



Stock Markets: 03 October 2012

US indices also suffered from the disappointment over Spanish refusals to call for aid.

In addition, Australia cut its benchmark interest rate by 25 basis points, as they feared deterioration in the global outlook and further slowdown in the Chinese economy. This helped stir the US bears, causing the Dow Jones to fall by 30 points.

As a result, we are seeing a negative start to today's European trading session, with the FTSE opening some 15 points in the red at 5790.

Also see today's feature: Time for a Spanish Bailout?.



Stock Markets: 02 October 2012

In the US yesterday, a surprisingly positive piece of economic data showed a rather resilient manufacturing sector.

Later on, Federal Reserve Chairman Ben Bernanke reiterated his pledge to use monetary stimulus beyond the point where it becomes clear that the recovery is on the right track.

Despite all this, American shares could not hold onto their early gains, retreating from the highs. The Dow Jones finally closed some 80 points higher, but this was significantly lower than the 150 point gain it had recorded earlier in the session.

The move reiterates the current skittishness of investors and, this morning, we are seeing European indices in the red, although the FTSE has clawed back some of its opening losses.

The index is at 5810 at the time of writing, whereas we had been calling it to open around 5790. As a result, those clients who bought the FTSE this morning are sitting pretty for the time being.

Economic data is thin on the ground today, but we will see the UK PMI construction data which is expected to move back above the key 50 level that suggests expansion.

Having said that, it wouldn't come as much of a surprise to see this number disappoint, since yesterday's manufacturing number was so poor and construction in the UK remains in the doldrums.



Stock Markets: 01 October 2012

In the past, the month of October has seen remarkable moves in the financial markets, and it's usually the ones that cause the most pain that are remembered.

As recently as 2008, the markets were still reeling from Lehman Brothers when October saw the FTSE 100 fall over 10%, adding to the 13% decline of the previous month. However, for the records, it is the crash of 1987 that remains etched on investors' minds.

For the FTSE 100, the average monthly declines in October significantly exceed those of the average falls in any other month. On top of this, October is historically the most volatile month, with an average range of nearly 12%.

But for all its sins, October is actually one of the more bullish months of the year in terms of number of rises compared to number of declines.

There have been 21 gains out of 28 for the UK index, a record only surpassed by the month of December. Of course, December is the most bullish month of all as investors ride the Christmas rally higher almost every year.

So what does this year have in store for investors? We had been expecting to see a negative start to the new trading month, however, right from the open the buyers have been aggressively pushing us higher.

Having called the index to open in the red by 10 to 15 points, we're now enjoying a 35 point gain, with many of the classic risky stocks taking part in the rally.

This strength comes despite some negative overnight news from Asia and a poor end to the last quarter, with the Dow losing 50 points to around 13,440.

The last few days of September were truly woeful, as equities recorded their biggest declines since June this year.

The FTSE 100 is currently trading at 5780, and 5720 has been earmarked as an important support level. The bulls have managed to keep that level intact for now but a move below there would pave the way for a test of 5620.

At the other end of the scale, upside targets are set at 5935 and 5985.


By Simon Denham, 12 October 2012


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