Stock Market Update 13 April 2012

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Stock Markets: 13 April 2012

Markets were awash with rumours yesterday that the Chinese GDP data was going to be much higher than expectations. However, we saw a classic case of 'buy the rumour and sell the fact'.

The Chinese GDP data was not as good as the rumour spreaders had hoped. Whilst Asian stocks have ended the week in the black they, and other risk assets such as the Aussie dollar and copper prices, retreated from their highs.

This is having a mild knock on effect for European indices at the open as they start the day slightly in the red. The FTSE is trading at 5700 at the time of writing and resistance is seen around 5770/5810, meanwhile support is seen at 5600 and 5535.

But the Chinese data was by no means a travesty. It goes some way to indicate that those forecasting a 'Chinese hard landing' are not yet seeing their predictions unfold. Even though the country is now growing at its slowest pace in three years, China continues to expand at a ferocious pace.

Even if their domestic property market is on a downward spiral and demand from their biggest customers, developed economies like ours, is waning, the demand within China is starting to really pick up and fuel the country's economy.

The Chinese remain key to the overall global economic picture as their ever increasing middle class consumes more and more of the products that the West produces. At the same time, the government maintains a pro-growth stance and is keeping the stimulus tap at a trickle with the ability to turn it on at a much faster pace if necessary.

The untapped domestic demand has the potential to keep China's GDP at elevated levels for a long time to come, but not at the sort of levels they have seen over the past decade. For now, their existing policy of gradually bringing down growth to a more sustainable level looks to be working.

Nevertheless, the bulls can't get complacent as yesterday's Italian bond auction acted as a reminder that demand for their debt is not exactly high. It's a quiet day for the bond markets so futures trading investors will be focusing on US earnings and economic data.

On that note, the economic data out today comes in the form of inflationary numbers. In the UK, producers will be delighted to see that their prices are expected to show a big decline with the month-on-month PPI due to fall from 2.1% to 1.2%. A similar figure is expected across the pond where CPI is due to decline. However when you strip out the food prices a small month-on-month rise is expected.



Stock Markets: 12 April 2012

Similar to yesterday where we had initially been calling the FTSE 100 to be opening a little lower it has actually ended up opening in the black as the bargain hunters looked around for cheap stocks.

After having wiped out all of the hard work done by the bulls for 2012 investors felt that the 2-3 month lows were a time to get back into equities. In the case of the FTSE it has bounced neatly off its 200 day moving average.

In the near term though, the FTSE has formed a bit of a downward trend capped by resistance seen at 5685, 5720 and 5760. There's also some scepticism with the bears feeling that yesterday's move higher was a bit of a dead cat bounce.

We have, after all, seen it all before. When it comes to leaders of European countries that are in the debt spotlight, they claim that they do not require any assistance only to have to ask for a bailout days or weeks later.

Spain remains the real worry at the moment and with unemployment so high they are facing a confidence crisis. Deep in recession and austerity measures due to be imposed that will only make growth harder, the outlook is bleak.

Real reform of their public sector and private labour market conditions is required on top of other reforms but this means taking the pain first. The markets have already shown indications of losing patience and if their bond yields continue to spike then we could well see more volatility and pressure to the downside.

On top of this you have the ongoing worries that China's economy is coming off the boil much quicker than expected. High oil prices are also filtering through to front line prices affecting businesses and consumers.

However, the bulls will argue that we are still in this bull market rally over the longer term and despite the hiccups of recent days the sell-off is a buying opportunity. That certainly seems to be the view of many Financial Spreads clients who have been buying the FTSE around the lows of yesterday and today.

However, in order for their bullish conviction to be rewarded we have to see the stock market index remain above the key support at 5575/50. The overriding argument in favour of the bulls is that the ECB is likely to remain on hand to buy peripheral debt at a moment's notice in order to keep bond yields down. Today all eyes will be on the Italian bond auction to see what the appetite is for their debt.



Stock Markets: 11 April 2012

Real worry was starting to set into the financial markets yesterday as equities saw a big sell-off and government bond yields spiked again.

In the European markets, the spread trading indices saw some big declines with Italy's Mib index falling nearly 5% and across the pond US stock futures recorded their biggest fall of the year.

Investors are starting to fret about the warning signs that are coming from many corners of the globe.

China's economy looks like it might be slowing quicker than was previously expected. In the US, last Friday's employment data came as a real shock and highlighted the fragility of things there. And the European situation never seems to be getting any better.

Recent economic data from France was by no means encouraging. Manufacturing production declined unexpectedly and their economy flat lined in Q1, narrowly avoiding negative territory.

In Greece, the social unrest is unsettling things there and only looks set to get worse which is really not going to help them in getting their economy moving again. A ferry strike there is poorly timed as their holiday season starts to get underway. Last year almost 17 million people visited to Greece to spend their hard earned money so this disruption will simply put people off going to a country that is heavily reliant on tourism.

The sell-off yesterday was triggered by a combination of all these factors but the spike in bond yields for the likes of Spain and Italy has to be the most worrying.

As bonds edge higher the point of no return, i.e. the 7% level, gets closer and closer. Although, the price increase looks to have abated this morning and, at the time of writing, yields are retreating from their recent highs.

The bonds spread trading markets will remain in focus as these seem to be the driving force for market movements at the moment.

Even the UK and Germany will be scrutinised today as they dip into the markets and auction off some debt. There are also wider concerns over the bond market with many saying that the bubble in debt is about to burst. If we see a bond market crash then this could spell serious problems as bond yields spike across the board.

This morning the selling has followed through from yesterday's session. However, we were calling the FTSE 100 index to open some 40 points down overnight and then around 25 points lower just before the open. Nevertheless the market has held up well considering the negativity that's out there. The small declines in bond yields for Spain and Italy seem to be attracting buyers. At the time of writing the FTSE is at 5600.



Stock Markets: 10 April 2012

The US employment data that was released on Good Friday disappointed significantly. The FTSE 100 futures market is on the back foot this morning following the extended weekend.

Any markets that were open yesterday, namely the Dow, saw selling and whilst the FTSE enjoyed two days off for Easter that selling has fed through to today's session.

Even though the non-farm payroll number was almost half what had been expected the unemployment rate actually fell from 8.3% to 8.2% which probably prevented an even larger sell off in the US session yesterday.

The figure highlights Ben Bernanke's caution in recent weeks where he has caveated any optimism about the world's biggest economy with his concern for the outlook and fragility of the US labour market.

In order to really bring unemployment down there needs to be consistent figures of +200k. With the US elections at the end of the year, faltering job creation could cause problems for Obama, at home he has continually had question marks over his running of the economy.

This data coupled with the focus back on the likes of Spain and Italy is unsettling spread trading investors.

Greece has seen industrial production decline further and Portuguese banks have been going cap in hand to the ECB to borrow more funds. This morning government bond yields for Italy and Spain are creeping higher with the former back above 5% and the latter edging towards 6%.

These fear gauges are also reigniting the concerns that caused economic turmoil during last summer. There's still that grey cloud hanging over the markets and we could see a repeat of last year where just as it looked like things were on the mend and confidence was returning, the next European domino fell, bringing the recovery crashing down to earth again.

The FTSE 100 daily spread trading market is at 5655 at the time of writing having been higher on the open but it's now testing the lows of the session so far. A downward trend has just started to form in the FTSE 100. Near term support is seen at 5625 and 5585 with resistance at 5740 and 5805/20.

Economic data is thin on the ground today and remains so for the rest of the week. That means it will be all eyes on the US earnings season which gets underway today in the traditional fashion of Alcoa reporting after the close this evening.



Stock Markets: 05 April 2012

Markets were in a very bearish mood yesterday and the sharp decline has almost wiped out all the gains so far this year.

The FTSE also breached various near term support levels as a bit of panic set in with fears that bonds markets might be setting their sights back on Spain and Italy.

The economic data from the Eurozone has been poor and financial spread trading investors feel they may have been walking blindly into the rally, forgetting that an economic recovery cannot be built and sustained on just stimulus alone.

For the longer term confidence has to be restored and converted into investment and spending. This is not what we are seeing right now, except funnily enough for the UK which is proving a small exception to the rule.

So with the Eurozone suffering from severe austerity and a huge lack of confidence any recovery beyond now looks like to be in trouble. This includes Germany too where Europe's biggest economy looks like it could be hitting the buffers.

These concerns were also voiced by the ECB' President Mario Draghi who was not exactly awe inspiring in his press conference following the ECB rate decision. This just added to the bearish sentiment.

Then to top everything up, as we know, the stock market rally has been built up on the back of stimulus from central banks. Only recently the Fed, the BoE and ECB have made it quite clear that their stimulus programs are coming to an end.

So what's going to fuel the rally from here? Well one possibility is the Chinese central bank. Not only has the bull market been fuelled by stimulus from western central banks, but the growth in emerging markets in particular China.

The emerging markets have only barely turned on their stimulus taps. That could be a trigger for the next step upwards if it ever materialised.

This morning the FTSE 100 is trying to recoup some of yesterday's losses, the worst day of the year for the stock market index.

At the time of writing the index is just about holding ground above 5700 at 5710. Following the move lower, all eyes are on the next support levels seen at 5680/20 and 5500.

This morning's bounce so far is a tentative one and there is little buying conviction as often these sharp sell offs can come in twos. However, if we do recover resistance is seen at 5775, 5800 and 5825.



Stock Markets: 04 April 2012

The stock markets continue to find themselves in a period of flux where neither the bulls nor the bears seem to be able to take control.

After each rally people start to get excited that we could push higher and break through to new highs, but then the markets come up against resistance and fail to follow through.

When the reverse happens, investors start to panic a little that we could be in for a bigger move to the downside only for the market to find support and then go back in the opposite direction.

This consolidation period can only be explained by an increasingly improving economic backdrop that continues to be shrouded in the eternal fear that the next European state might just blow up. But not only is the European issue a major concern there are other headwinds facing investors.

Last night's FOMC minutes were not encouraging if you are a bull who's hoping to hear that the door is still open for further possible stimulus or QE3.

This is what the recent rally has been built on and, whilst it caused some profit taking across the pond, it knocked the gold spread trading market for six.

Other headwinds come from inflation; it remains higher than most targets and in the UK we've seen food price inflation tick higher again. The Eurozone is also seeing prices creep up as the price of oil remains stubbornly high.

These opposing forces are what are keeping equity markets propped up but at the same time are preventing us from taking out the resistance levels.

This morning the FTSE 100 spread trading market is in negative mode as bearishness from the US and Asian sessions creeps through to Europe and it's the mining sector that's leading the way as metal prices soften following the Fed meeting last night.

Trading at 5815 at the time of writing near term support and resistance is seen at 5755 and 5870, 5900 respectively.



Stock Markets: 03 April 2012

The indices spread trading markets were in buying overdrive yesterday as the FTSE rallied almost uncontrollably, especially into its close last night.

This morning the index just seems to be in respite mode but this is hardly surprising after seeing the third best rise of the year.

When US equities continued into the evening they managed to hold onto their gains which rubbed off on Asian markets, then into the European session and so the merry-go-round continues.

The respite is a mild gain for the FTSE 100 spread trading market at the time of writing as we sit at 5885 pondering the next move.

It would seem that the bulls have their tails up and fancy taking the markets higher. However, as we've seen so many times in the past, the index has failed at and around the 5950 level and shied away from taking on 6000.

We are sitting at some near term resistance right at this level, where the 20 and 55 daily moving averages are converging, and so this might prove to be a sticking point for the market.

The only negative we can take away from yesterday's rally was that it was on slightly lower volumes than usual. As a result, it may not have been the most convincing move to the upside and we may have to wait a couple of days before seeing any continuation of the rally.

The problem here is that it takes us into the Easter break, which is going to be an eventful one since the US is insistent on releasing its Non Farm Payroll figure when all major markets are closed.

However, this is historically quite a bullish season for equity markets and April itself has seen many more positive months in the past than negative ones.

Our spread trading account holders have opposed the strength to now selling into the rally across most of the major indices but the FTSE in particular.

This positioning by clients doesn't come as too much of a surprise considering that the opposing of moves has been relatively lucrative for some. The FTSE has been constrained to rather a tight trading range recently without any major breakouts to the upside or downside.



Stock Markets: 02 April 2012

Equity spread trading markets ended the first quarter well and recorded some of the best gains for Q1 for many years.

In particular US stock markets risen well; the S&P 500 hasn't seen such strength since 1998 and the Nasdaq 100 since 1991.

That's enough to make even the most sceptical of bulls mildly optimistic, however the overriding fear remains that we will see a repeat of a year ago.

At that time, expectations were for the economic recovery to grab a stronghold and continue well into this year, only for the European sovereign debt crisis to blow up in investors' faces.

So far 2012 has started in a similar fashion as businesses are becoming slightly more optimistic about the future and they are starting to recruit a few more people in expectation of improving growth.

However, they are holding back from really ramping up investment as they don't want to have their fingers burnt again like they were this time last year.

There's a high probability that the next European nation might become embroiled in the crisis with either Portugal needing another bailout or Spain and Italy, far bigger economies than those bailed out so far, suddenly fall off their tightrope.

The indices spread trading markets are being tempered by the fact that last week European leaders, sorry I meant Germany, have agreed to increase the bailout facility and that confidence surveys have not yet fallen off a cliff.

At the time of writing the FTSE is at 5790 up almost 1% as the index finds support around the 5730 area for the second time in a month.

This double bottom is not only a crucial support level for the index, but it might be enough to attract bulls back into the market an indication of which we're already seeing this morning.


By Simon Denham, 13 April 2012


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