Stock Market Update 28 September 2012

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Stock Markets: 28 September 2012

The Dow Jones rallied following the announcement of the fifth austerity package by Prime Minister Mariano Rajoy, seen as a condition for a bailout.

Additionally, the equities markets were encouraged by speculation that even China will apply more stimulus measures to prevent further economic slowdown.

All in all, the Dow closed 70 points higher at 13,485 and so, this morning, the FTSE is up by some 20 points, trading at 5800.

The near-term trend still resembles a rather bearish market, with resistance at 5830, 5850 and 5870, while support is seen at 5780/70 and 5750.

Also see today's feature: Glimmers of Hope for UK GDP.



Stock Markets: 27 September 2012

At the time of writing, the FTSE is trading 20 points higher at 5790, after finding support around 5760.

(Sorry, I have spent most of the morning updating yesterday's feature - If Greece is the Fuse then Spain is the Bomb - Part 2).



Stock Markets: 26 September 2012

European spread trading markets have got off to a negative start today, following a mixed session in the US.

A statement by Philly Fed President Charles Plosser suggested that unlimited QE3 won't spur economic growth or bring down unemployment as much as is hoped. This weighed on sentiment and easily overturned some modest early gains, despite consumer confidence data which surprised to the upside.

As a result, the Dow Jones came under some pressure, recording a triple digit decline which took it to the mid-13,400 level.

In Europe, the major indices are under a bit of duress this morning, with the FTSE some 50 points in the red at 5810.

From a technical analysis point of view, the current short-term trend is definitely negative, with lower highs and lower lows seeing the bears sharpening their claws.

Near-term support is seen around 5805/00 and 5785, so a move below here could wipe out of all the gains seen since the ECB and Fed showed their hands only a couple of weeks ago.

Economic data is very thin on the ground today, with Italian retail sales this morning and US new home sales this afternoon.

Of course we will also see the weekly oil inventories, so there might be some excitement in the crude oil markets later on.

Also see today's feature: If Greece is the Fuse then Spain is the Bomb.



Stock Markets: 25 September 2012

The FTSE 100 spread trading market continues to see-saw, trading at 5850 at the time of writing, just in the black after a flat opening.

FinancialSpreads' clients remain rather bearish of indices in general, and this doesn't seem like an unreasonable position to hold considering all the bad news out there at the moment.

Having said that, the spread trading markets remain well propped up by the recent central bank action and so the declines don't seem to be following through with any meaningful lurch to the downside.

This is particularly the case for US indices, which remain just off their year highs.

Last night, the Dow gave back just a few points to take it to 13,558 but, this morning, we are already calling the index to open 25 points higher, as it edges closer to the 14,000 mark.

Also see today's feature: New UK State Bank to Leverage Itself Nine Times?



Stock Markets: 24 September 2012

The silly season of political party conferences is underway.

The Liberal Democrats have kicked things off by sticking their neck on the line and calling for higher taxes and fewer spending cuts.

If ever there was an attempt to try and get voters to notice them, this would be it.

Unfortunately, most of the support that they've lost in the last couple of years is unlikely to be persuaded back by such a lurch to the left.

In fact, many of their younger supporters aspire to live in the sort of houses that the Lib Dems are now suggesting that we heavily tax.

In addition, by slowing the rate of spending cuts, the government will have to borrow more at a time when heavily indebted governments are being bailed out left right and centre.

This would be almost inevitable as the austerity on the other side of the coin, in the form of higher taxes on the rich, simply wouldn't plug the hole.

The junior Coalition partners have had to shout to get noticed recently, but in the last few days it would seem that they are struggling to be heard at all.

Of course, these conferences tend to have very little effect of on the markets as there are bigger fish to fry, particularly in the Eurozone, the US and China.

Last week's performance in the Dow Jones was indicative of a market that was taking a rest, as investors tried to digest the rally seen earlier in the month.

The US index lost 20 points on Friday, taking it just below 13,600, as uncertainty triggered some light profit taking ahead of the weekend.

Although the US economy remains in a better shape than Europe, fresh concerns regarding Asia are not encouraging any additional long positions.

This morning, a little negativity is creeping into the European indices following a poor session in Asia overnight.

At the time of writing, the FTSE 100 spread trading market is 10 points in the red at 5840.

It seems that the initial euphoria over this month's central bank interventions has fizzled out, and we had been calling the FTSE 100 to open lower by 50 points or so at 5800.

However, the near-term support is preventing a substantial sell off for now and the index has done very well to recover from the outset of today's session.

There really is very little to report on the economic data front today, apart from this morning's German Ifo business sentiment figures.

For the rest of the week things get a little more interesting, with US consumer confidence tomorrow and then GDP data later on.



Stock Markets: 21 September 2012

With yields across the Eurozone disappearing very quickly, the equity markets are starting to look glaringly undervalued.

This may account for the fact that the stock market indices have managed to rally even though the growth prospects have dwindled just as fast as bond yields.

Our broker desk has pointed out that December 2012 3-month Euribor expectations are now for around 0.18%, even though the current base rate is 0.75%. Even the Dec 2014 rate, more than 2 years hence, is close to 50bps.

This highlights two things. Firstly, Eurozone growth prospects are virtually zero. Secondly, the ECB is likely to keep interest rates below inflation, effectively a negative return, as they attempt to keep the running costs of all the bail-out monies as low as possible.

Today will see the UK's August net borrowing data and, after the grim July numbers, expectations are not exactly high that these will be any better.

A Chinese politician at the 'Summer Davos' event, summed up the European/US problem when he said that China was looking for a model that did not go down the extreme social cost route of the West.

He suggested that huge sums are paid out in benefit allowances and the state has to borrow even larger sums to pay for it. A model that is sustainable in the short-term but certainly not on a long-term basis.

The FTSE bounced neatly off the support at 5820/25, and is now close to the bottom of the resistance band above 5880.

Our spread trading clients are heavy sellers at any price above these levels, which is hardly surprising as the markets have continually failed to make further progress.

It seems that the only thing which manages to punch us through resistance levels is central bank action of some kind. With little expected from them in the near future, this is adding to our clients' bearish feeling.

Obviously, too much confidence in trading ranges could be deadly, as a break-out would prove to be very costly indeed, but today looks likely to be fairly calm.

Having said that, there will be an option expiry at 10:15/10:30 which might add a bit of spice to the session.

Unlike the FTSE, US stocks have managed to get above the post-crisis highs, and the S&P 500 can now see the 2007 peaks as a less distant goal.

From an S&P 500 analysis point of view, there isn't too much volume or price resistance to the upside at these levels, and bulls are looking for 1525 as the next big target.

If we can close above 1457/1460 this week, some investors may claim that this is a confirmation of the move higher.



Stock Markets: 20 September 2012

With the continual support of the world's central banks, volatility in the markets has continued to drift lower.

While we experienced a bit of adrenaline over the recent stimulus announcements, the actual daily ranges of the last few weeks/months have been pretty pathetic. Also see today's report on Central Banks Continuing to Rewrite Economic Common Sense.

In this morning's early action, stock market indices are falling from recent highs as corporate results continue to disappoint.

This has coupled with Chinese manufacturing data showing that output has contracted for the 11th straight month, and Japanese exports which recorded a near 6% fall YOY.

It's sad to say, but if even China is not showing signs of stronger growth, the outlook for the rest of us cannot be anything other than grim.

In the face of ever increasing stimulus, the index spread trading markets are facing the obvious quandary where economic reality is running headlong into the falling value of actual money.

The FTSE 100 has opened some 40 points lower this morning, and Financial Spreads' clients are counting the cash after selling very heavily into the failure to make gains from last Friday.

Recently, we have seen that spread trading account holders have shifted to very short-term profit/loss horizons. As a result, we can expect to see some very quick profit taking if the early weakness doesn't quickly turn into a more general retreat.

For the FTSE 100, technical analysis is showing some good support at 5820/25 and 5805/15. In addition, there seems to have been an interesting trend over the past four months or so.

We have seen several solid rallies over short periods of time, followed by stagnation, followed by smaller retracements that have lead to the next rally, often prompted by another stimulus package. It seems that some of our clients have come to recognize the signs.

On the resistance side, pretty much anything above 5880/5920 is running into selling, with the Feb/April highs being the most salutary evidence.



Stock Markets: 19 September 2012

The insatiable appetite for monetary stimulus around the world continues. The Bank of Japan has now joined the party in an equally desperate attempt to get its economy moving.

It seems to be the fashionable thing for central banks to do at the moment, and if ever there was a central bank that knows about quantitative easing, it's the Bank of Japan.

But by the same token, if anyone should know that such measures are usually as good as flogging a dead horse, it's the Bank of Japan.

So who will be next in this ongoing saga of never-ending monetary stimulus? The BoE seems to have almost run out of ammunition, although yesterday's slight fall in inflation might get them warming the printing presses before too long.

Of course, we should also consider that, since their counterparts have commenced some much bolder measures, they won't want to be seen to be doing nothing.

Then there's the People's Bank of China, who have been monitoring the slow decline of their booming economy and won't want to be left out of the fun.

Even ahead of the move in Japan, the Dow Jones had seen some buyers return to the market after a slight retracement last night, pushing the index a few points higher to 13,564.

It seems that investors took a second look at Bernanke's latest round of unlimited stimulus measures and decided to go cautiously long again.

It remains to be seen whether this strength will translate into another convincing rally, or whether any potential gain will be closely followed by profit taking.

At the time of writing, it seems that the former is taking place, as our Dow futures market is calling for the index to open up as much as 75 points at 13,620.

At the European open this morning, the FTSE is trading nearly 20 points higher at 5885.

Nevertheless, our financial spread trading account holders have been positioning themselves for further declines and they remain largely short of the index.

Technical analysis suggests that near-term support is at 5820, 5755, whilst resistance can be seen at 5930, 5960, 5985.

On the economic data front, we have the release of the BoE minutes at 9:30 this morning, and then a raft of housing data from the US this afternoon.

The BoE minutes will be watched closely, just to see whether there was any major split within the MPC in terms of extending the asset purchasing program.

Expectations are that the vote to keep things on hold was unanimous, since the committee is yet to see just how well the new Funding for Lending Scheme is working.



Stock Markets: 18 September 2012

The old worries just don't seem to want to go away. Spanish bond yields are creeping higher once again, moving back above 6%.

At least they are still nowhere near the dizzy and unsustainable heights of 7.5%, so there's no need to start panicking just yet. However, it does act as a sharp reminder that if Spain insists on going it alone, without a bailout, then it is not going to be easy.

You can't blame Prime Minister Rajoy for remaining stubbornly opposed to a full blown bailout. No politician would want to impose the sort of austerity that would come attached.

When your country is already in recession and unemployment is rife, further pressure to cut back government spending would simply make things worse, damaging any prospect of growth in the near-term.

However, reforms have to be made as the current levels of government spending are simply unsustainable. If the country's bond yields continue to rally, this will make the chances of a bailout all the more likely.

Social unrest will continue throughout the country and Mr Rajoy's limited popularity will continue to dwindle. This highlights why politicians are always reluctant to make tough decisions; they are always the most unpopular ones.

Now that we have seen the latest central bank action, investors are finding that they have been left to their own devices.

As a result, the focus is very much back on Europe and, when the bond yields of worrisome countries are spiking again, you're going to see the party fizzle out.

This morning, the FTSE is suffering another bout of profit taking, adding to yesterday's 20 point loss with a 45 point loss today. This has left the index at 5850 at the time of writing.

Having been so close to the 2012 highs only a couple of sessions ago, it now looks difficult for the index to break through the 5950 area and test 6000 in the near-term.

Today's economic data comes in the form of UK inflation figures, where the year-on-year CPI number is expected to fall from 2.6% to 2.5%, but month-on-month is due to rise.

After that, there's the German ZEW sentiment survey and then there will be lots of speeches from members of the Federal Reserve this afternoon.



Stock Markets: 17 September 2012

After a euphoric week, where shares enjoyed substantial gains, a bit of a reality check is bringing investors back down to earth this morning.

Following Ben Bernanke's money printing announcement on Thursday, which got the bulls aggressively buying into stocks, a few profit takers are starting to creep in.

Many of those who piled into the equity markets last week will have done so in the belief that this has marked the start of a rally into the year end.

With US indices only a few percentage points from their all-time highs, it is understandable why they might hold this bullish view.

In the run up to last Thursday's big Fed announcement, there were quite a few people who believed that the US economy is doing well enough to not warrant any further QE at all.

As a result, the fact that financial spread trading investors got a whole lot more that they had expected, suggests that we are unlikely to see another recession in the world's biggest economy.

Nevertheless, questions still remain about the returns from such unconventional monetary policy.

Considering the amount of money that's been thrown at the problem, has it really done enough to help unemployment?

Mortgage rates in the US remain stubbornly high as banks across the globe are reluctant to add further risk to their balance sheets.

Here in the UK, it is certainly very questionable as to just how much QE has helped.

Going into the final quarter of the year, all eyes will be on the economic data to see whether the central bank actions have actually done what they were supposed to.

Now that the economies are pretty much on their own, having now received a helping hand from the central banks, investors will want to see their actions turn into actual jobs and growth.

As mentioned, the FTSE is taking things in its stride this morning, as traders take some profits after the strength of the last couple of days.

Currently, the index is just in the red, trading at 5900, but is some 20 points higher than we had expected, as we had been calling it to open around 5880.

Things are very quiet on the economic data front today and so we might just see the markets drift sideways for the time being.


By Simon Denham, 28 September 2012


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