27 Jun 2011
WorldSpreads, a UK-based spread betting company, has just announced the launch of FTSE sector bets.
Sector bets are composed of stocks in the FTSE 350 index. Each sector aggregates all the companies that belong to that specific industry of the British economy.
Clients will have the following thirty sectors available to trade:
Aerospace & Defence
Construction & Materials
Fixed Line Telecoms
Food & Drug Retailers
Health Care Equipment & Services
Oil & Gas Production
Pharmaceuticals & Biotechnology
Real Estate Investment Trust
Gas, Water & Multi Utilities
Household Goods & Home Construction
Real Estate Investment Services
Software & Computer Services
Tech Hardware & Equipment
Travel & leisure
A sector bet is useful when a trader has a view on a specific industry but does not know well each stock. An interest rate hike is certainly bad for retail making the sector a possible short target for spread betters. Identifying the exact companies that will suffer the most is a much harder task.
A trader can also buy the sectors with the best economic prospects and sell the expected underperformers, instead of buying or selling a broad-based index like the FTSE 100. Many other strategies can be developed in spread betting with the use of sector bets.
After inspecting CFD and spread betting providers, the Central Bank of Ireland published a report in which it states that some providers are not in compliance with the EU’s Markets in Financial Instruments Directive (MiFID).
According to the Bank, some CFD and spread betting providers fail to adequately inform users on the risks financial spread betting carries. There is a lack of information collected by providers on its clients’ knowledge and experience with financial instruments; there is no assessment of appropriateness of the instruments to each client; marketing material is often misleading; and risk disclosures are not sufficient.
In respect to this assessment, CMC Markets Ireland decided to voluntarily issue a statement last Thursday saying that the company “was not one of the four firms inspected, and, as such, is not the subject of its [Central Bank of Ireland] following up of the compliance issues identified or of potential enforcement action”.
Declan Bourke, CMC Country Manager, added “CMC Markets Ireland welcomes efforts to ensure appropriate compliance in this marketplace and is fully committed to offering the best possible service to our customers here in Ireland and to meeting our regulatory obligations”.
The US Dollar is broadly higher to start the week as uncertainty in the Eurozone is sending risk assets lower. This week, the Greek parliament will vote on the austerity agreement that was put in place last week, and this event risk could contribute to market volatility in the coming days. There were some positive macro headlines in the Euro region, but until these votes are completed, markets will continue to look for reasons to sell the Euro currency.
In the US, the Fed’s policy decisions that were discussed last week have added to the Dollar bullish bias. But it must be remembered that all the Fed did was to signal an end to further stimulus – not to signal a potential raise in rates. So far there has been no material suggestion that the US economy will perform well if we see the beginning of a new tightening cycle.
Later this week, aside from the Greek parliament vote, we will see CPI data from the US, Eurozone and Canada. To start the week, the EUR/USD is seen at 1.4100-1.4220 with the USD/JPY 80.30-80.90, with Asian equities generally lower.
In relation to the parliament vote on Wednesday/Thursday, the Greek Prime Minister and Finance Minister released statements suggesting they believe the austerity agreement will pass. The German Finance Minister (Schaeuble) released a similar statement, arguing that if the vote is not accepted, stability in the Eurozone will see significant risks as contagion effects could spread rapidly.
The Greek Finance Minister (Venizelos) dismissed any possibilities that Greece would leave the EU, as this would diminish the country’s ability to negotiate for aid. When asked about the size of the bailout agreement, he hinted that it could be as large as the previous loan of 110 billion Euros.
The French President (Sarkozy) and the Prime Minister of Spain (Zapatero) were both quoted as saying that banks and insurance companies in their countries are willing to rollover their Greek bonds, which would essentially extend the maturity dates for the sovereign debt.
Last week’s data showed that the German IFO rose drastically, to 123.3 for the month. Weakness in the report, however, can still be seen in the expectations index. This suggests some possible negatives for yearly GDP in Germany. UK macro data for the week will center on the final revision of quarterly GDP (from the first quarter) and speeches from BoE board members.
Friday saw new all time highs for the Swiss Franc against both the Euro and Dollar. This has been some cause of concern for the SNB and politicians have started to become vocal on the subject. The president of the Swiss Socialist Party (Levrat) has suggested that emergency measures be taken, and the president of the Swissmen (a group of industry executives) went as far as to call for the government to temporarily peg the Franc to the Euro. Negative Greek headlines will continue to create strength in the Franc, so this will be the key factor to watch going forward.
Overnight, the trade balance figures were released by New Zealand (May data) and the number disappointed estimates at $605 million NZD, on lower exports. The consensus was looking for a rise to 1 billion NZD.
24 Jun 2011
The Asian session saw some declines in volatility after the wild price swings that occurred on Thursday. Asian stock markets are in positive territory as risk aversion seems to have disappeared for the time being.
News from the Eurozone was the driving influence, as Greece and the EU made an announcement that a bailout agreement had been achieved, and austerity measures are set to begin. This announcement sent risk assets higher, which was a reversal, given the recent Fed speeches and disappointing US macro data.
Significant risks remain for the Greek economy, and there are still events that can create uncertainty. There will be an austerity vote next week but at this stage the markets seems to be thinking that the worst of the situation has already passed. The current agreement will last 5 years, and assessments will be made each quarter during that time. The EUR/USD has moved up to 1.4160-1.4280 with the USD/JPY at 80.40-80.60.
This Friday, markets will be anticipating the US first quarter GDP data (final release) along with durable goods figures and the core PCE. In Europe, German IFO for the month of May will also garner market attention.
Another story that will come back to the forefront this summer is the US debt ceiling, which is expected to be raised some time before August. In theory, if this does not happen, defaults could be seen. But even if this is the case, the delays are likely to be temporary. So, the main issue going forward will be the level of uncertainty and disruption that these delays will cause. Total US GDP growth could be negatively affected, and the Federal Reserve could be forced to inject another round of economic stimulus in the worst case scenario.
Earlier today, the Greek PM (Papandreou) announced that an agreement was made with the EU, and specifics related mostly to budget cuts in the domestic economy. The plan resembles the five year plan that was approved by the government in Greece and the EU released a statement confirming that the country’s financing needs in July would be met and that defaults would be avoided.
Both Greece and the EU have acknowledged that both sides will need to show flexibility in order to avoid economic disruption in the future. One German financial advisor reported that that Greece will need 40%-50% of its debt to be forgiven, which is more than what the Eurozone is currently allowing for, so it will not be totally surprising to see some changes made to the agreement later on. In macro data, Euro traders will be watching the German IFO data released on Friday, with markets expecting a strong reading above 113.
In other currencies, the Swiss Fran made gains across the board yesterday as markets were seeking safe assets. Also supporting this activity was a strong trade balance release, which came in at 3.3 billion Francs for the month of May. Contributing to the number was a large decline in imports, which was enough to balance the 1.5% drop in exports.
In Australia, the RBA released a statement suggesting interest rates will remain elevated for the foreseeable future. The bank remains relatively hawkish but will keep a close eye on the macro data releases so that bias can be confirmed. Second quarter CPI is likely to be the most important figure in making these determinations, and significant rises will be key for timing future rate increases.
The Dollar was held in a consolidation pattern as markets looked to assess the rate decision and policy statement from the Federal Reserve yesterday. The statement gave confirmation that that the latest round of quantitative easing will end, on schedule, at the end this month. Federal Reserve Chairman Bernanke explained that additional stimulus would not be injected because of the inflationary pressures that would be created. Looking at the specific language of the statement, the Fed advises that the policy rate will remain “exceptionally low for an extended period” of time, which is nearly identical to what was said in the previous statement.
This meeting does have the potential, however, to be the turning point for the US Dollar for the rest of this year, and a EUR/USD rate of 1.30 by the end of this year is not an unreasonable suggestion. The US currency rallied as Bernanke gave his speech, currently seen between 1.4290-1.4360, and the USD/JPY at 80.30-80.60.
News outlets have released reports that discussions between EU officials and private banks in Greece and Germany have started and the main topic centers on the role the private sector will play in the fund raising practices that will be required later.
The German Chancellor (Merkel) gave a speech discussing a range of subjects but she gave no additional clues for what will be seen next in Greece. During Bernanke’s speech yesterday, he highlighted the negative effects that could be seen if a European agreement is not reach soon, as uncertainty is unhelpful for the global economic recovery. This type of indirect statement is something that has been seen from many G7 officials recently, so it is clear that many nations are looking for a resolution in the near term. In macro data today, markets will be watching German and Eurozone PMI are on the schedule.
In the UK, economic indicators will garner more interest than usual, given the last monetary policy meeting. There were some disagreements within the central bank, so assessing their overall bias will come from what is seen in macro releases for the remainder of the quarter. The minutes from the June meeting showed an MPC vote of 7-2, with hawks Weale and Dale calling for a raise in rates. Overall, the bias was dovish and sent the Pound lower. Clearly the MPC is more concerned with growth than inflation (despite elevated inflation levels), so positive retail sales figures will be the key to turning market expectations.
Yesterday, the Norweigian central bank elected to leave rates steady at 2.25%, weighing on the currency. But this did happen as the bank raised its forecast for the range of future rate increases (to 2.25-3.25%). Markets are beginning to price-in a rate hike in August. There are outside factors, though, that could alter these forecasts, as a delayed resolution to the Greek bailout could have a significant effect on growth projections.
The EUR/USD has dropped to weekly lows below 1.4250. This area is the 50% retracement of the rally from 1.4070 but the bearish indicator on the 4H charts suggest that further losses are in store. Short term traders can buy into support at the 61.8% retracement at 1.4210, but keep stops relatively tight as it looks like we have seen a top formed on the longer term charts.