FTSE 100 and DAX 30 Slump

Posted on | May 25, 2010 |

Investors continued to flee risky asset classes on Tuesday, using yesterday’s small gains as an opportunity to close out positions at higher levels, causing European Indices to slump 2.5%.

Worries about the potential for high sovereign debt to destabilise growth is weighing down any appetite for risk. One prime example of this is the fact that the mining sector, one of the strongest sectors in yesterday’s session, is the heaviest faller today, with investors using yesterday’s gains as a chance to exit trades at higher levels.

When investors use market bounces as opportunities to sell and not market dips as opportunities to buy, it paints a picture that sentiment is very weak.

Investors continue to sell out of the heavyweight miners and banking stocks causing Lloyds shares to hit a new 2 month low.

Most of the buys we have seen have been to invest in the typical safe haven assets such as the US dollar and Gold.

The Dollar Index has risen over 2% this week already and is nearing a new 14 month high, which exemplifies the depth of the recent flights to safe havens.

UK GDP revised to 0.3% as expected

The markets reacted little to the upward revision of UK GDP, which came in largely expected by traders. However, there remains growing concerns that recent headwinds both at home and abroad could stunt the UK recovery.

Investors are likely to watch carefully both the details of the emergency budget in late June and the sovereign debt crisis within the Eurozone, which accounts for approximately 60% of UK exports, to assess its potential impact on UK growth going forward.

Please remember that Spread Betting and CFD Trading are leveraged products that carry a high level of risk to your capital and can result in losses that could quickly exceed your initial outlay. These products may not be suitable for everyone, so please make sure you fully understand the risks involved.

By Joshua Raymond, Market Strategist, City Index.

The above should not be construed in any circumstances as a recommendation or offer to sell or recommendation or solicitation of any offer to buy any security or other financial instrument.

Neither City Index not Spread-Betting.org warrant or represent that the material is accurate, complete, not misleading, or fit for the purpose which it is intended and it should not be relied upon as such.

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