29 Feb 2012
Equity markets and high yielding currencies moved higher overnight as traders focus on the European Central Bank’s (ECB) three-year plan to disburse loans to private banks in the region as a means for providing liquidity and solving some of the funding problems that are present in the Eurozone. Also seen supporting the uptrend was the stronger Industrial Production figures out of Japan and improved retail sales in Australia for the month of January. Ahead today, the main story will be the congressional testimony in the US from Federal Reserve Chairman Bernanke. The positive sentiment continues in most of the asset markets and this is weighing on the US Dollar and safe haven assets in general.
In the UK, macro data and corporate earnings are mostly second tier, with Consumer Credit, M4 Money Supply, and Mortgage Approvals on schedule. Earnings will come from Weir Group, International Consolidated Airlines, and Taylor Wimpey. None of these are expected to create much volatility during the London session and so futures in the FTSE 100 are currently little changed. Yesterday, the main headline in equities was the 9.8 percent yearly gain in revenue at Standard Chartered (to $17.6 billion, with net profits of $4.75 billion). The rise in profits is a new record for the company and given that is stock is in the vulnerable financial sector, the numbers were viewed as particularly impressive.
Markets in Asia are showing gains, for the most part, following the positive Consumer Confidence survey in the US and the positive stories seen in the Eurozone. The positive Industrial Production report was positive for steel companies JFE Holdings and Nippon Steel, which posted rallies on the session.
Macro data will be centered on the US again today, with the Gross Domestic Product (GDP), Personal Consumption Expenditure (PCE), Chicago PMI and MBA Mortgage Applications all coming out before the start of New York trade. Later in the session, we will see the Fed’s Beige Book released before the final event of the day, which is Ben Bernanke’s congressional testimony. With all of these reports scheduled, it is hard to know which will garner the most attention. But without any significant deviations from market expectations, markets will probably choose to focus on the PCE data, as this is the Federal Reserve’s preferred measure of inflation. If the figures can remain low, we will be unlikely to see any changes in analyst forecasts in terms of interest rate policy. Currently, there is no change expected in interest rates this year but one potential variable would be an uptick in consumer inflation data.
The NZD/JPY is pushing higher along with our generally negative view of the Japanese Yen. Prices are seen in an ascending triangle, with prices now seen breaking resistance at the double top previously in place at 67.95. Shorter term, this is a bullish sign, as we are seeing consistently higher lows on the hourly charts. A downside break of 67.50 reverses this view and will probably result in a downside break in the triangle.
The FTSE 100 broke to new highs but we are not particularly encouraged by the break, given the lack of follow through and the diverging indicator condition on the MACD. Momentum is clearly stalling at this stage, so we continue to take a contrarian view and will sell any bounce to 5920.
28 Feb 2012
Stock futures in the US are pointed toward a higher open with the S&P 500 indicating that we will see prices rise to their highest levels in nearly 4 years (when the main story in markets was the bankruptcy at Lehman Brothers). Part of the reason for the rise is the market consensus for today’s consumer confidence figures, which are expected to come in strongly.
A positive close today will be the fourth consecutive session showing gains in US markets, following yesterdays rally after the better than expected housing numbers in the region. Macro data has been generally supportive of the price activity in equity markets since the beginning of the year but another factor is that we are not seeing any new negative developments relative to the debt situation in Europe.
Today’s figures will be the Consumer Confidence report from the Conference Board and this is expected to have risen to 63 for the month of February (after a rise to 61.1 last month). This will be released along with Durable Goods Orders, but expectations here are that we will see declines for the month. Part of the reason for the negative expectations here are coming from slowing demand in airplanes and falling home prices.
The S&P 500 has seen a rally of 4.2 percent so far this month, and a positive close here will be the third consecutive month in positive territory as corporate earnings and macro releases have been supportive of sentiment. The S&P is currently trading at roughly 14 times earnings, which is still slightly below the 50-year average (approximately 16.5 times earnings).
Also seen supportive of stock prices is the effect of commodity producers, which have rallied on the higher price levels seen in oil and metals. Some of the biggest gainers have been Newmont Mining (the second largest gold producer in the world) and Freeport-McMoRan (the largest copper producer in the world). Copper prices have rallied for the past three days on speculation that policy accommodation in China will spur manufacturing demand. Traders in other markets should remain watchful of the rally in commodities, as this has specific correlations in both equities and currencies.
The EUR/USD came within 20 points of testing critical psychological resistance at 1.35, before dropping to 1.3360 in a corrective move. Prices are once again trading close to the highs but a new break is likely to have trouble overcoming 1.35 on the first test. Aggressive traders can take short positions into this area but stops need to be kept very tight here as a break will accelerate gains. A downside break of 1.3360 will turn the bias to consolidative and likely bring some stalling in price action.
The S&P 500 is grinding through some very important long term highs but follow through has been limited and this brings some risk of false breaks going forward. Risk to reward ratios clearly favor short positions at these prices but we have seen little evidence that a top is actually in place here and we will wait for clearer signals before getting short. A break of support at 1350 will remove the bullish bias and target a further retracement back to 1330 first.
27 Feb 2012
The Euro is trading near it closing level from last Friday with the next regional event coming with today’s vote in Germany on the second Greek bailout package. Weekend comments from the Governor of the People’s Bank of China were supportive, as he stated that the central bank is prepared to increase its loan availability to the International Monetary Fund (IMF). For the most part, momentum is slowing in the markets as there have been no significant headlines in recent sessions to give traders guidance.
This will likely continue today in the UK, as there are no major macro releases but we will see corporate earnings from HSBC, Pearson, Cookson Group and Bovis Homes. Stock indices in Asia are trading with mixed results, with positives seen in the Parco Company rally on news that it will be acquired by J. Front Retaling. Tokyo Dome Corp. was also seen higher on strong profit results for the year (previously the company had forecast losses for the period). The Nikkei 225 index is trading near its Friday close, with prices holding steady at 9,630.
In the US, the main data releases are the Pending Home Sales report and the Dallas Fed Manufacturing survey. There will also be a few significant corporate earnings releases, with Lowe’s, Priceline.com, El Paso Corp., and Southwestern Energy on schedule for release today. The main story in stocks on Friday focused on Metro PCS, which surged nearly 8 percent in the aftermarket session after it was revealed that Nextel no longer has plans to acquire the company. Vocus, Idenix Pharmaceuticals, Sears, Salesforce.com and EarthLink were also amongst the major gainers on the day.
Futures in both the DAX and CAC are suggestive of a lower open with today’s data seen with the French Producer Price Index (PPI) and Eurozone M3 Money Supply. Earnings reports, however, are mostly second tier and not expected to do much to move equity markets. The G20 meeting over the weekend did make comments relative to the debt situation in the Eurozone, saying that a “firewall” needs to be put in place in order for IMF loan limits to be raised
The AUD/USD is starting to look top heavy after its latest rally as prices are now seen forming lower highs on the hourly charts. A confirmation of this bearish bias will be seen with a break below 1.06, as this level marks critical support in the short term. A break here will accelerate losses and send prices to the 38.2% Fibonacci retracement at 1.0390. Traders can initiate short position on bounces after we have seen an hourly close below 1.06. Stops should be placed at 1.0765.
The Nikkei 225 has staged an impressive rally in recent weeks but there is some evidence that prices have reached their exhaustion point. On the dailies we can see a bearish engulfing candle after prices hit resistance at 9715. This, along with overbought indicator readings suggests that we will need to see prices drift back to support, at lease in the 9420 region before we can see another run higher. Short term longs can be initiated at this level, with stops below 9380.
London Capital Group, the parent company for the UK based spread betting provider Capital Spreads, presented strong preliminary final year results for 2011.
After a difficult year of 2010 in which the company was not able to end with a profit, 2011 was much more favourable in terms of trading conditions. Volatility increased in the second half of the year and led to record trade volumes that helped the company return to profits and post a revenue increase of 13% to £39.0m and an increase of 9% in adjusted profit before tax.
Profit before taxation hit £6.1m after registering a loss of £0.056m in 2011. Net cash and short term receivables almost doubled from £13.9m to £25.1m improving the company cash flow.
Spread betting continues to be the main revenue earner representing 68% of the total, although it is decreasing in importance due to the stellar performance of other company divisions. Spread betting revenues grew from £25.83m to £26.59, a 2.9% rise, while institutional forex grew 32%, institutional brokerage 76%, and UK and Australia CFDs are now generating revenues after a negative 2010. Nevertheless, UK spread betting was responsible for almost 83% of the operating profit generated in the year and grew 27%, clearly showing its importance.
Spread betting is in a mature period, especially concerning the UK market. Providers are investing in other products like CFDs and spread betting outside the UK to better surpass the stiff competition they face. The growth presented by London Capital Group is encouraging, signalling there are great opportunities outside the UK and spread betting, but at the same time it shows there is still room to grow in the UK.
Commenting on the results, Simon Denham, the company CEO stated: “Despite a difficult start to 2011 the Group has delivered a strong set of results and made positive inroads operationally and financially. We are particularly delighted to have improved our scalability, competitive position and to have developed our international operations further. Whilst the uncertain economic outlook both in the Eurozone and UK presents a challenging backdrop we are confident in the robustness of our business model and our future growth plans.”
The company expects its Australian unit to breakeven later in the year. This unit assumes a huge importance because of the popularity of CFD trading in the continent that has been fuelling revenues of rivals like IG index. At the same time it may serve as basis for expansion into the South East Asia.
24 Feb 2012
Spreadex, a UK based spread betting provider, has acquired the client list from the bankrupted rival MF Global.
After the shocking bankruptcy that put many traders in a long queue to receive their funds while KPMG was trying to manage what is left from the company, Spreadex took the opportunity to acquire the client list from MF Global, without any financial obligations attached. This means that MF Global clients were offered a continuation of service from Spreadex but without the funds they had in their accounts. Any claims on the funds should be made to the administration led by KPMG.
Many MF Global former clients were very dissatisfied with the situation since they saw their personal data changing hands without their permission and they were offered a continuation of the spread betting service but without their account funds.
It is usual for a company to acquire assets without the attached liabilities when a bankruptcy occurs and that was no different in this situation. In terms of privacy, the data can change hands without the Data Protection Act being compromised because the contract terms signed between MF Global and its former clients included clauses allowing for this third party involvement.
Although clients have been offered a continuation of service by Spreadex, nothing obliges them to do so. Many clients have already jumped out of the boat and are now using other spread betting accounts they hold at other providers while others are still more concerned with receiving the funds they held in their MF Global accounts rather than with continuation services.
The MF Global case was a major blow in trust since clients’ funds should be held in separate accounts such that in case of a bankruptcy, clients are not affected as dictated by the FSA rules. Unfortunately that was not the case with MF Global, meaning the FSA will have to rethink about its rules and supervision role to avoid future similar situations and rebuild the trust.
Just because this situation happened it does not mean spread traders can’t trust providers. There are many companies like IG Index, Capital Spreads, City index, and others that are always scrutinised by authorities and in certain cases, also by shareholders due to them being exchange-traded. They are safe places for spread betting. In any case, if you hold a large portfolio or if you trade a significant part of your savings, there is a rule of thumb that advises you to spread your eggs around as with other matters in life.