Financial Gossip

Finally!  We have a new Prime Minister and whilst David Cameron may not have won an outright majority, the outcome of the election was clear that the country did not want a Labour government or Labour coalition despite Gordon Brown’s best efforts to form one.  In unchartered waters now the new coalition government will not have an easy ride, but at least the rhetoric so far is encouraging with both teams waving the new Blue and Yellow flag to stabilise the economy and deal with the UK deficit.  The next landmark in the political calendar is the emergency budget in fifty days when our new Chancellor will announce the finer details of deficit reduction and tax increases or maybe even the odd cut here or there.

The FTSE is a little weaker in early trade after the dip towards the end of the US session last night although we were calling the market a little lower overnight.  The markets look to have stabilised a little for now and many investors are just biding their time before diving back in too fast as the sovereign debt situation throughout Europe still looks incredibly unstable.

There’s plenty of economic data out today with UK unemployment numbers at 9.30, which should show that the private sector is starting to hire again, although at a vey slow pace.  After that the quarterly inflation report is released at 10.30 which will highlight concern over the increasing rate of inflation, but it unlikely to show a big change in inflation expectations that should continue to point to a decline later in the year.

Cable had a see-saw day as the market tried to get to grips with whether the Lib Dem leader was going to get into bed with Labour or the Tories and as things gradually emerged that a Tory/Lib-Dem tie up was most likely the short covering allowed sterling to head back towards 1.5000 against the dollar and 1.1800 against the euro.  But after Gordon Brown’s surprise resignation gains were reversed and we’re back around 1.4900 this morning.

The euro remains the dog is all this after its relief rally back up to 1.3000 it didn’t take long for the bears to bring us sharply back down again and so this morning we’re at 1.2650.  Despite the massive bailout it doesn’t really change the fact that the PIIGS are struggling and the euro is overvalued.  Now that the 1.3000 level has been smashed, the medium term bears will be looking for a run at the 1.2500 next and below there 1.2300.

Questions are also hanging over the Aussie dollar as it has failed to gain traction above and beyond the 0.9300 area and there are fears that the RBA is near the end of its interest rate hiking cycle.  Quite a few long positions have been unwound and bears will be looking for a test of the February lows around 0.8600, in particular if further equity market weakness sets in.

The recent volatility of the fast few weeks have served to benefit the price of gold which so nearly marked a new record high yesterday.  Buyers are few and far between at these levels, but a break above here 1226 will have the bulls aiming for 1234, then 1240 and over the longer term 1278.  Looking at the longer term chart the bull run for gold still looks healthy, but the higher it gets, the more prone it will become to sharp corrections to the downside.  Buying at these levels now requires quite deep pockets, certainly if you want to buy the physical!

After yesterday’s mild decline for crude prices this morning Nymex is at 75.80 as it continues to hover just above $75.  Oil seems to have detached itself from movements in gold and the fears of the effect that sovereign debt problems will have on the wider global economy is taking its toil.

Spread betting was initially started back in the 1940’s by a maths teacher turned bookmaker in Connecticut called Charles McNeil. It was only in the 1980’s that the idea caught on in the UK.

In the early days of spread betting, there was no such thing as the Internet and as with most industries the spread better market today has been changed significantly with technological advances.

Nowadays, beginners have far more advantages than those learning to trade would have had. Spread betting companies have ‘dummy’ accounts that allow you to place paper trades and practice placing bets, allowing you to see how you would have done had you placed the trade in real life. In this way, you can build up your knowledge and your confidence without losing your trading pot.

When it comes to placing real life trades, there is no reason why anyone wishing to place a trade should miss out on an opportunity. An online account is accessible from almost anywhere in the world, so you can place a bet or check on the progress of existing spreads in a matter of minutes. Spread bets can be placed online and even via your mobile phone nowadays.

The opportunities for placing trades have also increased. You can trade foreign currencies or stocks and shares, which are fairly commonplace, or you can be a little more unusual and place spread bets on others markets, including sports areas such as the World Cup or the British housing market for example.

With all these changes, it is doubtful whether Charles McNeil would even recognise the spread betting market today.

Many people find spread betting a confusing concept, yet compared to many other trading or betting methods, trading on spreads has a number of advantages.

One of the top advantages for many people is that there is no tax on any winning or profits you make. A key advantage for many who trade on spreads is that any gains you make are completely free of capital gains tax (CGT) or stamp duty. This is one way that you can make money trading in shares and the financial markets without paying CGT. This is because a spread bet is technically an agreement between the spread betting company and the customer.

Another big advantage to spread betting is that you can make money on financial markets even when a stock or currency is decreasing in value. This is because you simply place a trade stating that you believe the stock will decrease in value; unlike stocks and shares trading, you never actually buy the shares so you cannot find yourself lumbered with a worthless stock.

A smaller advantage that some beginners fail to take note of is the ability to limit your loss whilst maximising your potential for profit. Using a Stop Loss order might cost you a little more but it guarantees that if things don’t move as you thought they might, you won’t find yourself more out of pocket than you hoped. Similarly, you can use a Limit Order so once your profits are reached the trade is closed and the profits are all yours.

Once you know what you are doing, spread betting can become very interesting indeed.

When it comes to spread betting, whether you are a newbie or an old hand at dealing with spreads, spread betting strategies start with limiting your risk. Here are a few spread betting strategies everybody should follow:

• Plan everything. The best spread traders research their market thoroughly. Be certain you know the risk-reward ratio and understand all the external influences. Make your plan and stick to it.

• Set yourself a limit – and stick to it. The old adage ‘only bet with money you can afford to lose’ is as true today as it ever was. Before you start, make sure you have saved up a small pot you can afford to lose and make sure that your Total Loss Limit covers all your spreads. Once you get to this, stop – close down your spreads and stop. Remove any emotion and avoid getting caught in the ‘just one more’ trap. Before you start again, save some new funds and research your market to be sure you don’t make the same mistake.

• Take advantage of the stop loss or a limit order. Using a stop loss can cost a little more but will help you avoid holding onto any poor bets, helping you to remove that emotion and stress. Similarly use a Limit Order so if you make the profit you set out for, the spread is automatically closed.

Stick to these good spread betting strategies and you will have the early makings of a profitable spread trader.

Despite the lack of any political settlement over the weekend, the markets are bouncing aggressively this morning following the fat finger trade last week that led to a huge fall in global markets.  Indices are now rushing to get back to their levels of a week ago and the buying is being compounded by bulls adding to long positions and picking up more stock.

This morning’s move commenced in Asian when equity markets opened up for the weekend and reacted well to the EU’s bailout plan.  The Euro zone has thrown the kitchen sink at the problem now, with the ECB also changing its rules once again allowing it to buy government assets.  Investor sentiment towards the EU has shifted significantly as the deal will go towards financing European debt for the next six months, really helping to minimise the risk of contagion.

The move will of course be funded in the main by the likes of Germany and France, whilst the troubled members get their houses in order.  The main cost will be to growth in the coming years as the austerity packages still need to be implemented throughout the PIIGS countries.

The main beneficiary of the morning has of course been the euro, which is up 2.5% back above the 1.3000 level after a few days of aggressive selling last week when it looked like there was little to stop the EUR/USD heading back to parity!  A lot of the move can be down to short covering as the pair is so heavily sold, so some bears will have been caught out by the move higher.

UK politicians have been let off the hook this morning after not being able to garner a deal as expectations were for some form of agreement on a coalition to have been made by last night, but the situation has been shrouded by David Cameron’s little brother having a chat with Gordon Brown yesterday afternoon.   Whilst a Lab/Lib-Dem team up is highly unlikely, Gordon Brown continues to limp along in a desperate attempt to remain our Prime Minister, but hour by hour pressure on him to resign becomes even greater.

Expectations were for a sterling sell off this morning, but markets are stabilising on the back of the euro bailout and so cable is flirting with the 1.5000 level again, although it’s unsurprisingly suffering against the euro.

The FTSE is back above 5300, with almost every stock gaining apart from BP whose failed attempt at capping the oil leak over the week end has caused weakness in its share price.

The Bank of England’s interest rate decision takes place at midday today. after being postponed from last Thursday due to the election.  With the resultant hung parliament, changes to monetary policy are highly unlikely especially since the chances of an emergency budget are increasing with a possible Tory/Lib-Dem coalition, so the Bank won’t want to do anything major before then.

Gold is suffering amid the buying frenzy of risky assets.  The safe haven precious metal has enjoyed a tremendous run back above the 1200 mark, but at these levels there are few buyers to sustain these levels and profit takers have driven the price back down to the 1190 area.

Along with equity markets crude prices are also enjoying a rally after having had a good old shake out of the bulls and reaching $75 at the end of last week.  This morning Nymex is back above $78, what now seems a long way off the dizzy heights of $86.

So the FTSE markets opened 160 lower and immediately added 100 points to rally to just 60 off in the first quarter of an hour.

The air of nervousness is palpable in all the markets after the chaos of yesterday evening when some programme trading in the US caused mayhem. The Nasdaq (on which many of the trades took place) has announced that any trades which were greater than 60pc ! off on an individual stock have been reversed but that all other trades stand. As an example of what happened Accenture fell from $41.00 to a traded low of 10 cents (!) a mind bogglingly stupid occurrence and one that can only happen when computers are allowed too much control.

Naturally rumours swirled through markets that something had happened to cause the sell off (a major European Bank failure was the favourite for a while) but ultimately the solution appears to be the unpalatable fact that the falling markets triggered a whole swathe of Black Box systems to start selling stock ‘at market’. There were not enough buyers around to sop up the surge in offers and the systems just continued to try to hit a bid (any bid). Whoever was running these programmes will be sitting on possibly Billions of dollars of losses as the market recovered just as quickly.

Just before Christmas last year I was asked my prediction for the FTSE’s level at the end of 2010. I gave the answer “5250” for the sole reason that it was trading at that level at the time of the question and I could not really see any reason for either a rally or a fall. A week ago with the FTSE pressuring 5800 I was resigned to being seriously wrong on my rather ‘tongue in cheek’ prediction but suddenly we are back under the number at 5210 and I am looking quite guru like.

At least the election is now over so we can get back to some sort of normality. Labour cannot form a government with just the Lib Dems and will need other parties to agree to a coalition. This rather damages the power of the Libs as they will probably now have to deal with the Tories if they want to get into power sharing and will be unable to trade one party off against the other. The harsh decisions that will have to be made over the next few years will have a huge number of dissenters in all the parties and I do not fancy the job of chief whip for the next parliament. A coalition of Tory/Lib Dems/ Ulster Unionists is probably the most stable pairing as it will not rely on all the Lib Dem members voting the way of its leadership.

We are in very dangerous waters in the markets in general with extreme volatility suddenly breaking out (May is always a bloody awful month). The FTSE does have major support at 4970/5000 although it did trade as low as 4830 or so last night but this can be discounted as a break as it relied on the mess in the US. While the sell of the last few days has been precipitous it is difficult to really get a handle on the real underlying causes. Corporate results have been much better than expected and, while the sovereign debt issue has been headlining, other issues should not impact the equity markets to quite the extent that has been the case. The reactions over the last few days merely emphasise the fact that not everyone was really convinced by the last 13 months of near one dimensional direction.

It is time for tin hats, deep pot holes and even deeper pockets as clients attempt to hold positions against the vagaries of the markets. Sitting on your hands in this type of activity is definitely the best policy.

On the currency markets there is a different worry. The Euro has now almost reached the longer term target for the Bears of around 1.2350/1.2450 (mentioned …..ooohhh ….way back last week when we were up at 1.3250) and the cross actually got as low as 1.2520 last night. It is difficult to get our heads around it but.. the Euro is still overvalued on a purchasing power parity view point although it is now marginal. Movements like this generally go too far so there is still a good possibility of even more pain for Euro longs.

The only winner in all the chaos was Gold as investors desperately searched for any port in a storm. The yellow metal reached as high as 1210 but this might now prove difficult to match as saner markets come back into focus. Dealers will be concerned that the rally was not more powerful as other asset classes went into meltdown and so longs may well start to take profits.

Simon 09.16

on the note of the last message miliband won his seat with 18k (total votes about 33k) next up was cameron winning with 33k votes (total votes over 53k)

one of the really irritating things about our elections is not just the first past the post issue but the fact that so many of the constituencies are of such varying size (even after decades of boundary changes).. many of the southern/rural constituencies seem to have 50 to 60 thousand votes (requiring at least 20-24 k to win) whereas many of the metropolitan constituencies seem to only need some 13 to 19 thousand to emerge top of the pile.

it does leave one wondering how these things are calculated

simon 02.51

thoughts of a decisive election are now virtually dead. I particularly enjoy the winning  speeches as the vast majority (from whatever party) are bile inducing attacks on the others. Nary a gracious tone in victory from any of them (as would be decorus) even if they did not mean it

The tight seats all seem to be falling in line with the incumbent member. Unless something very strange has happened the Lib Dems look to be acheiving a zero sum gain but  with the emphasis very much on the word ‘gain’. The vagaries of the electoral system have always deprived them of their fair share of seats but this time they may very well have the power to force electoral reform.

For Labour this would almost certainly mean a virtual permanent seat of power as the LD’s would need a dramatic change of focus to ever actually support the Tories.

Markets do not seem to know what to do but the important thing is that they are not collapsing under the failure of the Conservatives. A relief rally may be on the cards.

Simon 02.42

ftse futures now open and are indicating that the FTSE will open 155 points lower on the off in fact i cannot actually remember the index opening up a gap of this size from the previous sessions close. [a curious fact about 9/11 was that the FTSE actually traded higher over the next few days.]

the reasons for the fall out in the evening session in the USA are still not clear but the first day after an election is not a great one for a huge sell off.

Simon 01.24