Stock Market Update 20 July 2012

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Financial Spreads: Spread Betting and CFD Trading


Stock Markets: 20 July 2012

With the equity markets back to their highest levels, on both sides of the Atlantic, since April this year, rumours of sunnier days just around the corner seem to be taking hold in the City.

Despite the poor shopping weather in June, UK retail sales increased by 0.1% on the month, and sales volumes were up 1.6% on June 2011.

Yesterday was a day of consolidation after some impressive gains earlier in the week and with no key economic releases due, we could see more of the same today.

Christine Lagarde presented the International Monetary Fund summary findings on the UK yesterday. The upshot is that the government received calls to slow the pace of budget cuts next year if UK growth shows no sign of recovering.

In their clearest warning yet, the IMF suggested quick action was required to avoid "permanent loss of productive capacity".

It would appear that Co-op certainly have good reason to be pleased with their days work after it was announced that they have secured some 632 of the old Lloyds Bank branches from the government.

The deal was worth £350m upfront and another £400m over the next 15 years. That's somewhat short of the initial suggestion of £1.5bn.

Judging by some of the comments in today's press, it would appear that the taxpayer has lost out, despite the Treasury assuring us of the commercial value of the deal.



Stock Markets: 19 July 2012

The Dow Jones posted a second day of gains as technology stocks reported strong earnings.

Ben Bernanke added to the positive sentiment by stating that he didn't believe the US economy would slip back into recession, although he remained elusive about more quantitative easing.

Yesterday, the Dow gained 103 points to close at 12,909 and this has allowed European indices to add to the gains achieved earlier in the week.

The FTSE is currently in the black by a handful of points, and was even looking to test 5700 earlier.

The UK index will now face a test of that well known resistance area around 5700/25. It comes as little surprise to see Financial Spreads' clients selling around this level.

On the economic data front, today's focus will be on UK retail sales, which are expected to show another rise of 0.6% month-on-month, and then the weekly initial jobless claims from the US. This will be followed by more US housing data and the Phili Fed manufacturing figure.

Also see today's feature - UK Unemployment Figures Do Not Tally with UK GDP.



Stock Markets: 18 July 2012

Well the markets didn't get what they wanted from our friend Ben Bernanke, as he gave little indication of any upcoming change on the stimulus front.

If you had just read a transcript of yesterday's testimony, you might be forgiven for thinking that it was simply a 'copy and paste' of the most recent FOMC minutes, as his stance remained unchanged.

The overall economic picture remains fairly gloomy, which has been the case for some time now. However, the more economic doom and gloom that we see, the more investors believe that the Fed will start its next round of unconventional stimulus.

In a massive tug of war, the bulls are holding onto their equity positions in the hopes that the Fed will make such an announcement in the short-to-medium term.

On the other end of the rope, the bears are looking at the current picture and remain sceptical that anything can be done to prevent the global economy from being dragged into another recession.

At least there was finally some decent news from corporate America last night. Stunning earnings reports from Goldman Sachs and Coca-Cola gave bulls the impetus to brush aside Bernanke's downbeat comments.

The Dow Jones managed to climb out of negative territory to finish 102 points higher at 12,806.

The gains were all the more impressive as the index had been as low 12,645 after Bernanke disappointed markets by failing to roll out further monetary stimulus.

The Dow's rally from the lows has brought a few buyers out in Europe so far this morning, with the FTSE starting just higher at around 5635.

The recent ranges have remained incredibly narrow, making ideal trading conditions for our spread trading account holders.

They have been picking the peaks and troughs and haven't had to wait too long if the market gone against them before it has moved back in their favour.

The earlier volatility of spring is long gone and, with a 'summer' full of sporting events ahead, there's little prospect of that changing any time soon.

Many investors are likely to be either away completely or watching their televisions, with only half an eye on the financial markets.

On the economic calendar, a highlight of today will be the UK unemployment figures which are due to show unemployment remaining at 8.2%.

Crucially, we will want to see whether the good data from the beginning of the year, which showed unemployment falling, is a trend that's set to continue.

Growth may be flat-lining, but jobs are being created and the private sector is just about picking up the slack from the public sector job losses.



Stock Markets: 17 July 2012

The saga continues, and today will see the Governor of the Bank of England sit in front of MPs to discuss whether he played any part in the resignation of Bob Diamond.

Having said that, you can bet you bottom dollar that the focus of the questions is likely to be on something called Libor.

As one of the most talked about words of the day, at least it takes the focus off the Eurozone crisis. Unfortunately, because the two are so intertwined, they almost go hand in hand.

Barclays itself has suffered a 20% decline in its share price over the past couple of weeks, whereas other banking stocks have only declined by single digit percentages.

The silence of the other banks is almost deafening; why wouldn't you keep quiet when you can see what's happened in such a short space of time at Barclays. The firm is now rudderless and has had its reputation more than just tarnished.

At some point, the other implicated banks will be exposed. It will be very interesting to see if the pressure applied to them will lead to more heads rolling or whether those executives will have been saved by the Barclays fall guys.

Our FTSE futures market spent all morning suggesting that the FTSE would open higher by some 10-15 points, but we actually opened flat in the end. As a result, we are currently hovering around 5662 at the time of writing.

There are lots of things for investors to look forward to in today's economic calendar. We could easily see caution continue into the afternoon when Ben Bernanke's two day congressional testimony on the US economy gets underway.

This has the potential to move every market later today, as investors will be listening out closely for any sort of indication that QE3 is being considered.

With the recent raft of poor economic data, some bulls have already been positioning themselves for this possibility. This goes some way to explain why the markets have not been heading lower recently.

It is also very possible that we will see an uptick in volatility over the next couple of days, as traders interpret his comments in different ways. A move in one direction could well be proceeded by a sharp move in the other direction.

Before Bernanke gets started this afternoon, we will see UK inflation numbers released this morning.

These are expected to remain at 2.8% year-on-year, with a decline of -0.1% month-on-month. Price rises have declined significantly in recent months but inflation still remains above the 2.0% target.

The BoE will be hoping for further declines in the months to come, but as they mention it is proving more 'sticky' than they had hoped.

With Brent crude oil still remaining around and above the $100 a barrel level, we may see this stickiness for some time to come.



Stock Markets: 16 July 2012

The markets ended last week on a positive note, with the Dow Jones sustaining its highs and putting in a very decent gain.

China's GDP came in pretty much as expected, avoiding the much rumoured collapse. As a result, investors were encouraged that, whilst growth hadn't fallen off a cliff, it dipped enough to keep the prospects of more stimulus alive.

Also adding to the tide of positive sentiment where the earnings results from JP Morgan, which sparked a strong recovery in financial shares. The buying frenzy spread to other sectors and the Dow rallied 204 points to close at 12,777.

This morning, the FTSE is trading flat after an exciting first 5 minutes, where we initially opened lower-than-expected before bouncing back to around the 5660 level.

After Friday's strength, we're moving back towards the resistance level of 5700/25. Although it's still a little way off, this should be the next major hurdle for the index. To the downside, 5600 is pegged as the major near-term support.

Also see today's report on 'Another Libor Scandal'.



Stock Markets: 13 July 2012

Whilst US markets did recover from their lows last night, the Dow Jones still posted its sixth day of declines. The index was dragged lower as US corporate earnings struggled with persistent fears about the global economy and Europe's debt crisis.

The Dow's weakness saw it close at 12,573, down 31 points, maintaining its longest losing streak since May.

Nevertheless, the bulls will take heart from the fact that the close was significantly off the day's low. In fact, the Dow actually added 80 points after the close of the FTSE 100.

This disparity has given the London market a little boost this morning, gaining 25 points to 5633, and helped to brush off the weak Chinese GDP data.

Support for the UK index is at 5600, while the near-term resistance is seen around 5675.

Also see today's report 'Will China Implement More Stimulus?.



Stock Markets: 12 July 2012

Spread trading investors have been left disappointed by a lack of clarity from the US Federal Reserve last night, who continue to play the waiting game.

With a Presidential election coming up, they cannot be seen to be partisan in any way, and so any hopes that new stimulus would be around the corner were dashed.

Considering the lack of fire power left in the Fed's arsenal, they can't just push the QE button again purely because the economy is dipping slightly.

At least they have been clear that they will act should the economic conditions dictate. With the way things are going, many in the market are still expecting to see something later this year.

So whilst the Eurozone continues to suffer, and China is starting to wobble, the US economy is seeing its own erosion of confidence.

Demand from its biggest trading partners is weakening and, whilst it is not in a perilous position just yet, the US labour market is beginning to falter.

Back on this side of the Atlantic, the next chapter of the Eurozone crisis is beginning to unfold. Spain is taking its bitter medicine by implementing austerity measures and reforms that are leading to social unrest.

The last thing Spanish voters want to see is their country going down the same route as Greece, where all they can see is years of recession ahead and no light at the end of the tunnel.

Unfortunately for these countries, many of the reforms are necessary to make their labour markets more competitive and productive, rather than being so heavily reliant on the state.

It's a painful way to pay for the mismanagement of the past and full recovery is years down the line.

A lot of Spanish property remains completely empty and, where villas were 300k a couple of years ago, they are barely even half that today.

Needless to say, the FOMC minutes didn't attract many buyers to the Dow Jones last night, so the index shed 48 points to close at 12,604.

Its recent run higher, from the lows of June towards the 13,000 level, hasn't lasted and this will remain the major resistance hurdle for the index.

The Dow futures market is already pointing towards a negative start later this afternoon, and the bears will be targeting support around 12,450.

The FTSE is also in sell-off mode this morning, down some 40 points to 5620. The 5620 level is actually the near-term support and so the bears are testing the bulls' resilience.

Economic data is still a little thin on the ground today and so all eyes will be on tonight's Chinese GDP data.



Stock Markets: 11 July 2012

As the US earnings season gets underway, slightly ahead of its European counterpart, investors will have a chance to reflect on a quarter that has seen generally disappointing macro economic data.

With all the major economies slowing more than predicted, firms that had been gearing up to take advantage of the recovery have been forced to change tack. Most will have reined in projects and investments and looked at other ways of reducing costs.

The biggest cost to any company is usually its people. Whilst we have seen unemployment peak in the UK, and even in the US it has declined over the last few months, it is increasingly likely that more people will lose their jobs.

Expectations for the latest earnings season had already been reduced but we have still seen some disappointments. These have contributed to a couple of poor sessions for the Dow.

Yesterday's figures from M&S didn't make for good reading either. They highlighted that the dire weather is not only hurting retailers, but is also adding another headwind for consumers.

Despite yesterday's surprise jump in UK industrial production, it's unlikely that the UK will return to growth in the second quarter.

Across the pond, growth is slowing and the labour market is stalling and, whilst the US is not immediately at risk of another recession, it's certainly touch and go.

All this will increase the likelihood of further QE as central banks have become addicted to the idea that further stimulus is the solution to our economic woes.

At some point they really will run out of fire power, and the current short-termism will probably result in an even worse downturn in economic activity.

Tonight's FOMC minutes will be interesting to read, following their extension of Operation Twist and willingness to let the markets know that they are still considering extra QE.

With their remit being focused on the labour market, it's clear to all that things are not as rosy as they would like. As a result, many CFD investors see it as only a matter of time before they pull the trigger again and tonight might shed more light on when that could be.

Due to the overnight weakness in US markets, the FTSE is in the process of erasing yesterday's gains, falling to 5630 at the time of writing.

With little in the way of economic data ahead of tonight's FOMC minutes, we could see another suppressed trading session with narrow trading ranges.



Stock Markets: 10 July 2012

A mixed bag of news is making it difficult for investors to decide whether equities are going to move higher or lower.

Chinese data is very much in focus this week and we saw inflation dip by more-than-expected yesterday. Today's import numbers were also way below forecasts and Friday is expected to see GDP fall below 8%.

This will be a key focal point for investors in mining and energy stocks as their long-term investment plan is largely based on the sustainability of growth in the BRIC nations.

At the same time, the Eurozone issue rumbles on and on, with Spanish and Italian government bond yields having spiked again in recent days.

Yesterday, Spain's 10 year debt was back above 7% and Italy's moved above 6%. Considering their bulging debt burdens, these levels are unsustainable for either country.

EU finance ministers have given Spain a bit of breathing space by loosening their fiscal deficit targets. However, it seems that most investors are still very sceptical that the latest EU agreements will actually work.

Today will see a key vote in Germany as politicians decide whether the decisions made at the EU summit are constitutional. The vote will be closely watched and, whilst it is expected to pass, there's always the chance of an upset that would send shockwaves through the markets.

This vote is crucial for the future of not only the Eurozone, but the whole EU project. It's a vote of confidence as to whether deeper integration will continue to be sought.

Aside from all the macro news and events, here in the UK two contrasting stories have shown a very mixed picture of the consumer.

Retailers Marks & Spencer and ASOS could not have reported more opposite trading updates.

M&S disappointed with some bad like-for-like sales, especially in terms of the non-food division. In fact, the weak results actually claimed the job of Kate Bostock who had headed up the non-food section.

Unfortunately, the update highlights a growing concern that the company is suffering from wider underlying problems. For the high street bellwether not to benefit from the Jubilee weekend, where retail sales across the country saw a big jump, raises an alarm bell.

M&S' shares are slightly higher on the open, but only because the results weren't quite as bad as the market had expected.

Meanwhile online retailer ASOS tells a different story altogether; their UK sales alone had a really good jump. This is another thorn in M&S' side as it shows that people are shopping for clothes, just not in their stores.

In the markets, investors seem to be unwilling to commit too much ahead of today's German vote. As a result, the FTSE is currently trading flat-to-positive.

Given the narrow trading ranges and low volumes over the last few recent days, it's almost as if investors are shutting down for the summer, especially with the Olympics just around the corner. At this rate, we may not see volumes significantly pick up again until September.

At the time of writing, the FTSE is trading at 5630, with near-term support at 5590 and 5570. To the upside, we also have resistance at 5670, 5700 and 5725.



Stock Markets: 09 July 2012

Mixed messages abound within the financial spread trading markets, and we are continuing to see the FTSE 100 dither just below the 5700 level.

Bank bashing is still rife at the moment and, whilst some animosity towards them is understandable, we have to appreciate that their jobs are being made more and more difficult.

On the one hand, the banks are being continually told to recapitalise more by regulators and the likes of the IMF. These institutions fear that UK banks will suffer badly if the global economy, and particularly the Eurozone, turns ugly.

On the other hand, you have politicians and the public berating them for not lending enough to help pull the economy out of the doldrums.

The pressure of all this is getting to be quite telling, and now some of our best bankers are resigning over the Libor scandal. As this issue continues, it might not be long before other heads roll and so several senior banking executives will be very nervous.

The main problem that banks are currently facing is the struggling UK economy. And then there's the fact that the global economy is beginning to see the power houses of growth start to falter.

Why would a bank, especially one that is majority owned by the British taxpayer, want to risk its precious capital by lending to a small business or individual? In the current climate, many small businesses are unlikely to give the money back.

Unfortunately, this is exactly the kind of vicious circle that results in a recession. Reduced lending leads to a lack of confidence, which stifles business investment, and so the banks are reluctant to give more credit.

As eluded to above, it's not just the UK economy that's suffering. The global power houses of the US and China are slowing down by more than many commentators had anticipated.

Last week's Non Farm Payroll came in lower-than-expected once again and there have now been too many instances of this in 2012.

China is seeing a dip in inflation and so the old soft or hard landing argument is being batted around again. All eyes will be on China's GDP figures later this week to see just how things are going.

The FTSE 100 is currently languishing below the 5700 level. Earlier this morning we had been calling the index to open 10 points higher, however, we've gradually drifted lower and are now trading in the red at 5650.

Clients that sold around the 5700 level have been rewarded by the index's inability to get above the resistance around 5700/25. If the US stock markets are not going to spur investors into buying, then it's hard to see what else will.


By Simon Denham, 20 July 2012


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