Stock Market Update 25 November 2011

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Stock Markets: 25 November 2011

It's Black Friday! That's not a bad thing for the markets but it refers to the biggest shopping day on the planet as 150 million Americans are expected to hit the malls.

This is the time of year when US retailers are due to go into profit as heavy discounting and a public holiday lures consumers in through their doors. Those who can't get to the shops, presumably the unfortunate people who have to work in the shops that open at unearthly hours of the day, go online on "Cyber Monday" splashing up to $20bn.

The figures for this US Thanksgiving are expected to break records which comes as a surprise considering the dodgy outlook for the economy. However it just goes to show that you can't put the US consumer down. When you tempt them with heavy discounts they look under the back of the sofa to find the cash to get that new television or item of clothing.

At the moment the US economy is still growing and even if it is slower than forecasts only a few months ago, unemployment hasn't run away with itself. The consumer is the heart of the US economy with their spending making up some 70%. If they weren't to go shopping this weekend then the impact would be huge, with a recession looking even more likely.

As Americans splash the cash for their extended weekend, European markets continue to suffer under the malaise of the European sovereign debt crisis.

Markets were not best pleased about German Chancellor Merkel's insistence that the creation of eurobonds are not the answer. Even though the President of the European Commission himself has been banging the drum calling for them to help settle nerves at least a little.

Even if Germany did give into the idea this would not be the answer to our problems. It would take time to be ratified across all the European nations, further delaying their impact and meanwhile Italian and Spanish bond yield creep ever higher. Italy's 10 year bond is back firmly above 7%, a level which is considered unsustainable.

There are some major European bond auctions in the run up to year end with next week being one of the biggest as France, Italy, Spain and Belgium will all be in the spot light. If they are anywhere near as poorly subscribed as this week's German one then we could be in for trouble.

The FTSE (UK 100) market is taking the led from Asian markets this morning and with no Dow Jones which is closed for Thanksgiving volumes will be low and there are certainly no expectations for a big move to the upside.

At the time of writing the FTSE is hovering just above 5100, in the red and looking poised to test new recent lows. Often it is the case that with no US markets to assist with direction European indices just follow their most recent trend. Which as we all know has been south. Having said that US indices have hardly been propping things up.



Stock Markets: 24 November 2011

Fear has once again spread through the markets as traders shunned a German Bund issue yesterday, with just under €4bn of the €6bn issue actually being taken up.

Bond traders generally see the German government as one of the most stable, but this poor sale sent yields higher to 2.15%.

The knock-on effect was the same for Italian and Spanish bonds, whose yields on 10-year bonds hit 6.99% and 6.71% respectively.

To put this into perspective, Portugal, Ireland and Greece all needed bailouts when their yields hit 7%.

Just to throw another ingredient into the mix, France has been told by rating agency Fitch that it may need more fiscal austerity in order to keep its AAA rating.

The UK CFDs markets couldn't escape the negativity, and the FTSE 100 shed 1.3% making it 8 consecutive down days, which is its longest losing run since 2003.

It closed at 5139.78, its lowest level since October 5th and the Eurozone panic was once again a major reason.



Stock Markets: 23 November 2011

This morning we are seeing further weakness for the UK 100 stock market index as Asian indices traded lower despite the US containing losses.

Later on, we also have more PMI data due for release from Germany and the EU.

Europe's biggest economy, Germany, is no longer immune to the doom and gloom spelt out above and their services and manufacturing sectors are going into decline.

In particular, the manufacturing figure is sitting below the 50 level and set to get lower still.

Services are expected to remain above the 50 level, however don't be surprised if we see this number dip below too.

The EU number doesn't look any better with new orders continuing their decline and exports suffering. All in all not a pretty picture for the Eurozone.

Also today we have the release of the Bank of England minutes where the UK stock market traders will want to see what the chances are of further QE. High is the basic answer.

Then US data comes in the form of durable goods, personal income and spending, the weekly initial jobless claims, a day early ahead of Thanksgiving tomorrow, and then we end up with Michigan confidence. No shortage of data before the North Americans go on holiday then.



Stock Markets: 22 November 2011

There is finally a positive start to a session this morning after what has seemed like a bit of a rout for equity markets.

The bounce so far though isn't very convincing as the technical analysis has become increasingly bearish as support level after support level is broken up.

The dizzy heights of 5600 seem a world away from where we are now as any upside looks increasingly challenging with any rallies being very short lived.

Sentiment is seriously bearish now and even meeting a retired ex-banker yesterday, who knew little about spread trading or CFDs, asked me how he could make money from the FTSE going to 4600.

Financial spreads account holders on the other hand are more optimistic at the moment as they have been opposing the weakness buying the FTSE around these levels. In fact, they were even longer of the index yesterday, so a further bounce will be warmly welcomed by them.

Key levels to watch in the near term are 5300 to the upside, which is where the upper downward trend line comes in, and then beyond there, if we ever get to those levels, is resistance at 5350 and 5400.

To the downside, support is seen at yesterday's low of 5220 and 5200 but if we breach here there's not much until as low as 5000.

With so much shrouding the financial markets at the moment investors are finding it tough to get in the slightest bit excited about equities.

With the Americans we've seen it all before and, whilst the credit rating agencies have said that they are not currently circling the US, they will be monitoring the politicians' inability to agree on their budget deficit cuts closely.

The key to all our problems at the moment though is not only to have a lasting solution to the European debt crisis, but to reinvigorate growth.

Yesterday our Dave admitted that his deficit reduction plans were not going to hit their original targets. This was a nice little prompt for the newspapers ahead of next week's autumn statement from the Chancellor, but the reasons given for the miss were a lack of growth.

The adage of "under promising and over delivering" is not something that politicians seem capable of doing and their original growth forecasts were, at best, over optimistic when the coalition set out their plans.

Lots of hopes are being pinned on next week's statement as the unemployed and businesses look to George to kick start the economy which has been flat lining for the past few quarters.



Stock Markets: 21 November 2011

This morning the FTSE (UK 100) is adding to the losses made last week.

Investors once again are focussing on the US debt problems after a weekend that bore no fruit in the respect of an agreement on how to slash their government spending.

Does it really come as much of a surprise that, after agreeing to raise the debt ceiling on the condition of an agreement on spending cuts this month, that we get to the next deadline and guess what, political wrangling.

Our spreads account holders are really getting tired of politicians' inability to deliver and here again we have an example of a stalemate.

The last thing this fragile market needs is more instability from the World's biggest economy just as we did in the run up to them raising the debt ceiling. We all remember what happened then as a result of leaving it down to the wire; the US were quite rightly downgraded by S&P.

The markets never forget and investors remember the volatility this instilled across equities.

Selling has taken us back below the 5400 level which had managed to hold up so well and this is negative from a technical point of view.

This has opened up the way to a possible test of the low 5200 region if we go below 5270 and a test of 4800 can't be ruled out if we carry on down from there.

At the time of writing the FTSE is another 80 points or so in the red at 5280 and has been falling steadily throughout the session so far.

Equities are not a happy place to be right now with so many uncertainties shrouding the indices financial spread trading markets in doubt.

The landslide parliamentary election victory for the conservative People's Party in Spain seems to have appeased the bond markets for now. However, this morning's sell off is being driven by the wider concerns of the overall debt situation affecting not just Europe but the US as well.

Economic data is thin on the ground today with only US existing home sales for us to get our teeth stuck into. Home sales in the US have held up pretty well throughout 2011 but are expected to show a little dip just this time for the month of October.



Stock Markets: 18 November 2011

The FTSE 100 is taking a bit of a hammering this morning as the index continues what has been a very poor week.

More crucially is that we are below the 5400 level which has served the index so well up to now, supporting the bulls and leading to several bounces back higher from around here, just as was the case yesterday.

A very weak session from the US last night has led to this morning's sell off and, at the time of writing, we are at 5375, in and around this support area.

A break and close below this area could spell further weakness towards 5270 and then even the lows of the year around 4800, so in other words a serious mass sell off.



Stock Markets: 17 November 2011

The FTSE continues to hover around 5500 but just below it this morning. Gains continue to remain hard to come by for the stock market and the lack of direction is worrying.

The year-end rally has certainly not kicked off yet, if it comes at all this year, but the only thing that will do it will be a clear solution to containing the sovereign debt crisis.



Stock Markets: 16 November 2011

Yesterday's dip in inflation will have been welcomed by all as the decline from the peak is seen by many as the start of the return to inflation levels that are more sustainable for everyone.

People in the UK have suffered far higher levels of inflation compared to normal, with the VAT hike and rising fuel and food prices causing discretionary spending to be seriously reined in.

Finally we have seen a fall that is expected to mark the end of the upward trend for prices. Commodities have pulled back in the face of slowing growth around the globe and this has fed through to prices in the supermarkets, which have been undergoing a fierce price war in order to attract shoppers.

The real winner amongst the supermarkets has been the discount stores such as Lidl with their super discounted deals and so the bigger names have had to work hard to keep the bargain hunters on their side.

In this climate it is difficult to make those big margins on many of their products as competition drives their prices downwards. Even as the festive season approaches, some can't bank on Christmas being the big boost they would normally expect.

Christmas makes up about half of overall annual revenues for most retailers, meaning the period is absolutely crucial and can be make or break. This is especially true for smaller independent retailers and even more so for those who do not have any presence on the internet.

As mentioned above, this year is going to be tough for many people and so festive budgets are being squeezed more than they have been in recent years.

Today UK CFDs investors will be focusing on a number of economic data releases and in particular the Bank of England's Quarterly Inflation Report.

Here expectations for growth as well as inflation will be announced and what the market will be most interested in is hints as to what plans there are for extending the recent restart of QE.

We can expect a gloomy outlook for growth in 2012 and, as a result, the BoE could expect inflation to eventually undershoot their 2% target in a year or so's time. This would allow them to justify the restart of QE and pave the way for more.

Also this morning, UK unemployment numbers are released which will be seized upon more by politicians than economists and unfortunately the picture of the UK labour market is not a pretty one.

The rate of unemployment is expected to rise once again and the focus will most certainly be on youth unemployment where there simply aren't many jobs going around for graduates.

If you were a small firm looking at the continual downgrades to growth forecasts and problems in the Eurozone, then you would be reluctant to take on any new staff and may even trim numbers.



Stock Markets: 15 November 2011

Calls for greater integration within the EU are getting louder and louder as politicians continue to dream of an ever more powerful central European state.

There's no question that more fiscal integration could have helped avert the current crisis by preventing profligate states from going on their spending sprees whilst borrowing from the bond markets at the same rate as Germany.

However, the reputation of the Eurozone project has been badly tarnished and, whilst there might be appetite from politicians, there is growing scepticism from the voters.

Certainly in the UK, which has historically been one of the more sceptical nations, proud to have the head of state on its own bank notes, the old cracks in the Conservative party have re-emerged. Now the Labour party is making louder noises about reclaiming powers from Brussels.

The banging of the EU drums is a desperate attempt to prevent a break up of the Eurozone which is looking increasingly likely as the crisis unfolds.

Calls for further integration will face stiff opposition and take years to implement even if the general consensus from European parliaments is in favour of such a move.

This morning the FTSE is just about holding up OK at around 5515. All eyes remain on the government bond yields of Italy and Spain which have been creeping higher this morning, but at least there's been some decent GDP data so far this morning from both France and Germany.

Things have been rather choppy so far this week and it seems as though there really is little buying appetite to really push things higher on the Indices CFDs markets.



Stock Markets: 14 November 2011

Who'd have thought that an ex-banker would have been asked to run the third most heavily indebted country in the world after years of animosity towards them?

Populist thinking fails to appreciate that it's the politicians who are ultimately to blame for this bout of turmoil in the CFD markets and it is only them who can possibly turn things around.

At least this time there's a degree of hope that a banker turned politician will be able to implement the sort changes required to pull Italy back from the brink.

For now the markets seem to be calm but the job that lies ahead for Mario Monti is no minor one. The sort of reforms that are needed will come up against substantial opposition and for many the fact that he's an ex-banker will probably rub the wrong way.

At least he has some things on his side that should assist him with the job. Despite its vast debt piles, Italy has a huge portfolio of reserves and assets, one of which is among the largest hoards of gold in the world.

This morning the FTSE is tentatively higher by some 20 points to 5570. Last week ended up being a relatively bullish one for the index after Friday's rally and on the hourly chart a double bottom has formed around the 5350 area.

Over the short term this 5400 to 5350 area has become rather a crucial support area meanwhile to the upside 5620/40 are seen as resistance.

Over the longer term, the index rejected the 200 day moving average at the end of October however it has slowly but surely been trying to get back up there. It will be interesting to see whether the momentum and appetite from the bulls is there to carry us higher.

The Wall Street index on the other hand has not even rejected its 200 day moving average and, whilst it has suffered from a bit of choppiness around this 12000 area, it's still above that level.


By Simon Denham, 25 November 2011


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