Posted on | May 11, 2012 | No Comments
If problems in Europe weren’t enough for investors to digest, the last thing markets wanted was more headline risk, however, that is exactly what they got.
The news out of the US with respect to a huge trading loss at investment bank JP Morgan, as well as disappointing economic data from China, has seen equity markets retreat even more on what has been another bad week for investors.
The biggest fallers have been in the basic resource sector after Chinese industrial production data for April came in below expectations of 12.2 percent at 9.3 percent.
Vedanta and Xstrata are among the biggest fallers as copper prices nosedived.
Financials have also fallen sharply after the announcement of a +$2bn trading loss at JP Morgan’s, caused by a trader called the London Whale.
The loss is seen as a major surprise given the bank was seen by many as one of the few banks to come out of the financial crisis with some semblance of financial credibility.
This has sent banking shares sharply lower, led by Barclays, as markets once again fret about the risks banks across the sector take in looking to generate revenue.
The main concern is if something like this can affect JP Morgan, how vulnerable is the rest of the sector?
In Spain, the government has asked banks to set aside another €30bn to offset any further deterioration in their loan books, but concern remains that this is unlikely to be anywhere near enough.
It’s not all doom and gloom, on the plus side the more defensive sectors are performing well with utilities a major gainer led higher by Severn Trent.
Shopping centre owner Hammerson continued its gains from yesterday on speculation that it is a bid target.
In the retail sector Marks and Spencer is also higher after being upgraded to “buy” by Bank of America Merrill Lynch.
US markets opened lower this morning with banking stocks leading the decliners as the fallout from JP Morgan continued to worry investors.
In company announcements there was good news from chip maker Nvidia who announced better than expected sales of its graphic chips for the 1st quarter.
It is not just banking stocks worrying investors though with concerns about Europe and a slowdown in China weighing on sentiment.
Markets have managed to pull off their lows as concerns about rising inflation eased in April after US PPI saw a fall of 0.2 percent month on month. Meanwhile, University of Michigan sentiment came in above expectations for May at 77.8, the highest level in over four years.
Forex Spread Betting
The biggest gainer in the forex spread betting market today has been the Canadian dollar after jobs numbers for April surprised to the upside with a gain of 58.2k, well above expectations of 10k.
The US dollar hit its highest levels since early March against a basket of currencies as investors rotate capital into the relative safe haven of the world’s biggest reserve currency.
Amongst the biggest losers has been the pound which slid back after a disappointing Nationwide Consumer confidence number for April which slid back from 53 to 44, as households worried about the effects of the double dip recession.
A downward revision in construction output figures also raised concerns that UK GDP numbers could well get revised lower, not higher, and that has dented sentiment surrounding the pound after its recent gains.
Rising Spanish bond yields continue to weigh on the single currency as it hit its lowest levels against the US dollar since January.
Commodities Spread Betting
Copper prices dropped sharply today after the disappointment of this morning’s industrial production data raised concerns that China was slowing down much quicker than investors had originally thought.
A downgrade of China’s GDP growth for 2012 by UBS has also weighed on the commodity space.
Crude oil prices have also slid sharply on the back of this weakness in equity markets as well as concern about the length of the recession in Europe.
This comes after the European Commission downgraded its growth forecasts for a number of European countries raising concerns that demand could well drop sharply.
Gold prices have also come under pressure as gold spread betting investors pile into the US dollar as investors become less bullish about the allure of the yellow metal.
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Spread Betting, FX and CFD comments by Michael Hewson, Market Analyst, CMC Markets.
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