BetOnMarkets Market Reports

Last week US equities ended a volatile week with big rallies on Friday, but these only came after the benchmark S&P 500 index had plunged to levels not seen for over a decade on Thursday. Despite Friday's 6%+ rallies on the Dow Jones and S&P 500, those markets still finished the week down 5.31% and 8.39% respectively. After months of bailouts, mini rallies, rate cuts, and false dawns, investors threw in the towel. On Thursday, there was a panicked flight to quality, as the yield on the shortest term US treasury bonds sank to near zero. Money is flooding to what is perceived to the safest haven in these troubled times. The panic pushed investors into bonds, breaking records for that market. The yield on four-week Treasury bills fell to 0.045 %, and the three-month bill was yielding just 0.03 %, as investors rushed for safety.
The cost of insuring against investment grade companies defaulting shot up to its highest level since the crisis began. Worse still, Warren Buffet's Berkshire Hathaway fund has seen the cost of its credit default swaps shoot to 5 times the level they traded at in June. At current levels, the CDS prices are implying that Berkshire is more likely to go bust than Morgan Stanley. When the Dow was trading around 13,000, Buffet used derivates to effectively bet that the market would be higher than this level in 15 to 20 years time. While there is still considerable time for this bet to work out, Buffet has already marked down a $6.7 billion loss on that trade. When investment 'Gods' such as Buffet look ready to fall, it is hardly surprising that investors are running to safe havens.

Just two months ago, the US Federal Reserve was still concerned about the "upside risks to inflation". With last week's 1 % decline in US consumer prices and rapid declines in UK inflation figures, we've gone from fears over inflation and stagflation, all the way to deflation in the space of 90 days. As a sign of the times, oil prices hit a new milestone last week. Just four months after making record highs of $147 a barrel, oil touched a low of $48.25 on Friday, a remarkable drop of 67%. The rapid demise in crude prices is having a direct impact on the Russian economy and stock market. Since May the Russian stock market has been leading other so called BRIC nations lower, with a drop of around 70% since the May highs.

Financial shares led the selling. HSBC received a broker down grade on fears of the state of its tier 1 equity ratio. HSBC was formerly at arm's length to the rest of the banking sector with its relatively low exposure to US subprime loans. However, the 'world's local bank' is now feeling the pressure due to its exposure to emerging economies, especially the troubled BRIC economies. In the US Citigroup was hit hard, losing half its value in just three days. Once the biggest US bank by market value, there is speculation that bad loans and writedowns may add up to losses totalling $20 billion for the troubled Citigroup. Some commentators point to Treasury secretary Paulson's change of tack with regard to long directly buying toxic assets under the TARP program for sparking much of last week's sell off.

Next week starts with the German Ifo business climate report which will analysed closely after recent announcements that many parts of the Eurozone are already in recession. US existing home sales are released at 13.00 on Monday and analysts are expecting further declines to 5.02 million from 5.18 million. Tuesday morning brings a raft of UK economic announcements with the MPC treasury committee hearing top of the list. Preliminary US GDP is announced around midday, with the revised UK figures out the next day. Thursday is an extremely busy day with a large number of US announcements. Core durable goods, unemployment claims and new home sales are the notable highlights. The rest of the trading week could be relatively quiet with many traders using Thursday Thanksgiving holiday to make a long weekend.

There is simply no telling what the market or economy might be like as we start 2009. A selloff of this speed hasn't been seen since the 1930s, and although comparisons have often been made of late, it is worth noting that at the low points of this period, rallies, when they came were surprisingly aggressive. Barry Rithholtz last week noted that the AAII individual investor's stock allocation was 15% below its 21 year historical average. Although not marking the exact bottom, readings of this nature were not a million miles from the lows of 1987, 1990 and 2002. With a hoard of cash waiting in the wings, there is always the possibility of this reading again marketing the bottom. However, this market has left many seasoned professionals scratching their heads as the selloff has been unlike anything seen for generations. In recent months, these markets have reached extremes of sentiment that in the past have market key turning points. The trouble is that of late, markets have continued to make new extremes way beyond previous inflection points.

One market that has been away from the headlines is gold. In the first quarter, it ran up to over $1,000, but has since retreated to just under $800. Gold was seen as a hedge against inflation and was used as a hedge against the weak dollar. With inflation on the wane and the dollar on the attack, gold has been on the retreat. However it hasn't collapsed in the same manner than oil has and this is because gold is seen as a safe haven in times of trouble. These opposing cross winds have kept oil in a volatile trading range between $800 and $700 over the last 30 days. With gold rallying $50 alone on Friday, there is a very real chance of a break out of this range in the next 30 days.

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The FTSE currently indicates a flat open, as traders realize that todays trading will be dictated by the US GDP numbers. Everyone will be watching to see if the numbers will show a contraction, which would indicate an official recession. This could result in the FTSE giving back most of their gains earned on Monday.

Oil jumped back to life on Monday gaining more then 9%, however there are concerns that the rally was more of a last gasp rather then a start of a new trend. Should crude add to those gains, we should see oil jump back into the 60 dollars per barrel mark

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The FTSE is currently indicating a slightly weaker opening, while traders wait for the release of the of the UK GDP numbers. After seeing the US economy officially enter a recession, yesterdays traders worry if UK is the next major country to follow. Most analysts are expecting exactly that. Unless there is an upside surprise, the FTSE is most likely to spend the day in the red.

Oil was hurt yesterday as worries about a slowing economy were renewed when data showed that the United States officially entered a recession. Today, around London close, we will receive the weekly inventory data, which will determine the next short term direction for oil.

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The FTSE is currently indicating a slightly stronger opening, as traders are finally able to take their eyes off the US markets for the next couple of days and just focus on UK fundamentals. Based on GDP news released yesterday, UK is entering a recession and analysts are looking to the government on hints of a how they plan to get the British economy back on track. There is a very strong chance that the FTSE will experience a low volume day.

Oil falls weaker this morning, as concerns over lower demand intensify. OPEC has yet to react, but is rumored to cut production again at next months meeting. The only question is, will they cut enough to actually make a difference? Most analysts are betting that they will not. With that being said, look for oil to trade in a tight range today due to the American Thanksgiving.

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With US markets closed for thanksgiving, European equities are enjoying a relatively quiet session. In fact, the FTSE 100 is currently trading within its tightest range since the end of September. Credit markets are continuing to unfreeze and the VIX Volatility index yesterday closed below its 50 period moving average for the first time since the start of September. Implied volatility levels remain high but at least there are signs of calm creeping into equity markets.

Recent events in India have so far failed to have too much of an impact of equities, with most European stocks moving little after this mornings opening flurry. It is worth noting the muted reaction in gold prices at this time. Gold is traditionally seen as a safe haven in troubled times, yet despite the traumatic events in India Gold has barely moved at all over the last couple of days. With the implied risk of world governments defaulting on their bonds increasing, one would also have expected gold prices to increase as investors seek out safe havens for their assets. There are many factors affecting the price of gold, not least the strength of the dollar, but perhaps today’s lack of reaction is another indicator that volatility is set to decrease further as we approach the last month of a tumultuous year. Just last week, 2008 was set to be the worst year on record for many markets. Although this year will undoubtedly go down in the history books no matter what happens from here, there is a chance that it won’t end as it began.

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The FTSE is indicating a lower opening, as traders await to see the release of the EU employment data. While its not UK data, with the EU being a huge trading partner, a slowdown there could mean harder times for the UK. The way the FTSE opens today is totally dependant on that report.

Oil is on the weaker side of things again, as concerns that OPEC will not cut enough production to offset lower demand has traders dumping the futures contract. Crude oil is trading down 63% since its all time high reached on July 11th. Oil prices will be fluctuating wildly today as traders position themselves before the OPEC announcement.

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The FTSE currently indicates a flat opening, as traders wait for the release of the US ISM numbers before deciding the tone for the week. This could be a quiet week for the FTSE as there will be no economic data in UK except for the consumer confidence report on Wednesday. We could see a higher opening today if the Euro-Zone retail sales numbers come out better then expected.

Oil traders were burned this week after OPEC decided to surprise everyone by not cutting output during the weekend meeting. Oil dropped below the 55 dollars per barrel mark and it is very likely that crude will be trading below the 50 dollar level by the end of the week.

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The FTSE is currently indicating a slightly weaker opening, while traders wait for the release of the of the UK purchasing managers index. Analysts are concerned that a weaker then expected number could be just the thing to continue the sell off that saw the FTSE shed more then 5%.

Oil prices have lost more then 10% of its value since OPEC has decided not to cut production during the weekend meeting. Some worry that by the time the next meeting rolls around oil prices will be below the 40 dollars per barrel mark. For today oil should stay above the 45 dollar mark.

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Markets are on the advance today with US markets pushing global equities higher. It is difficult to ascribe a definitive reason for today’s buying and it would be easy to fall into the trap of finding a story that fits. A rebound from a sell off that went too far yesterdays is a likely contributor as are the noises from central governments that they may be willing to go further to help their ailing economies. Whatever the reason for today’s rally, investor’s a grateful that last week’s gains haven’t been wiped before the end of Tuesday.

Tesco is one of the biggest gainers today in the UK after announcing better than expected sales figures. Traders are impressed with Tesco’s flexibility in being able to compete against both the discount and higher cost super markets. Analysts had feared that discounters Aldi and Lidl would seriously dent Tesco’s earning potential, but the Cheshunt Giant has shown that it can adapt to the new competition and challenging market environment.

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Markets are down today as US ADP employment report confirmed what many Americans are already experiencing; the number of people in private employment is falling. Like readily available credit, jobs are being squeezed on both sides of the Atlantic. Corporate layoffs also surged to a near 7 year high as the omens for the Friday’s big US employment report appear grim. Markets have managed to hold on to most of yesterday’s gains though as bad news about the economy is starting to be priced in. Today’s job numbers were at the lower end of estimates, but they could have been a lot worse.

Resource and energy stocks are under pressure as crude prices continue to slide. Oil prices made a century of sorts today, at $47, oil prices have now fallen exactly $100 from their peak in July. The decline is all the more remarkable when you consider the fact that oil started the year under $100. Oil majors such as BP, Shell and Exxon Mobil have managed to hold up relatively well of late though. The divergence between oil prices and oil majors may possibly be a function of oil producers being able to extract good margins as the price at the pumps hasn’t fallen to the same by the same severity as the price of crude.

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