Today’s announcement by the ECB that 800 banks borrowed up to €530bn in the latest tranche of three year loans saw a rather tepid reaction from markets today.
The Italian market outperformed in Europe with Italian stocks up the most, while Italian bond yields have also fallen back sharply. Given that Italian banks tapped the facility for around €100bn, it’s not too hard to see why.
The rest of Europe’s spread trading markets have seen a more measured reaction given that the sum borrowed came in pretty much in line with expectations. It’s been better economic news out of the US that has seen stocks try to gain in the afternoon session.
The next worry though remains with Portuguese bond yields which have surged as the risk of the country becoming the next shoe to drop in this crisis, gets ever larger.
While this extra capital looks set to underpin markets further, at some point fundamentals need to reflect the economic backdrop in place in Europe, which apart from Germany isn’t great. Moreover, the fact that markets have already rallied significantly from the announcement of the first LTRO in December doesn’t help either.
The best performing UK sector is the more defensive utilities sector with Centrica and Scottish and Southern leading the gainers.
ITV is the best performer after the terrestrial broadcaster beat profit forecasts despite a tough trading environment.
British Airways owner International Consolidated Airlines Group is also doing well after reporting a five-fold increase in pre-tax profit in the year ended December 31st, from €84m to €503m, despite a 29% increase in fuel costs.
Standard Chartered Bank has followed HSBC’s results earlier this week by reporting better than expected numbers for 2011.
Indian energy company Essar Energy continued its recent see-saw price moves, dropping sharply after a broker downgrade.
US markets opened higher today after US Q4 GDP was revised slightly higher, back to 3% from the earlier 2.8% reading.
Chicago PMI data for February also came in above expectations of 61 at 64, with the employment component hitting its highest level since 1984.
This has consolidated the Dow’s position above the 13,000 level and closes in on the 2008 highs at 13,137.
In earnings news, retailer Costco saw Q2 earnings rise 13% posting profits of $0.90c a share, above expectations of $0.87c a share. The Nasdaq Composite also continued its recent good run hitting the 3,000 level for the first time in since December 2000.
Despite this better news, financial spread trading markets remain cautious ahead of Fed Chairman Ben Bernanke’s testimony to the monetary policy committee as the recent economic data continues to confound the Fed Chairman’s recent downbeat view.
The single currency has been absolutely caned against the high yielding currencies today after this morning’s LTRO, down substantially against the New Zealand, Canadian and Australian dollar.
It has also lost ground against the pound after economic data showed better than expected consumer credit and mortgage approvals data for February.
Against the US dollar, the euro has traded in a fairly tight range, between 1.3400/1.3500.
Rising Portuguese bond yields have also raised concerns that the beleaguered country could well be next in line for a bailout after the ECB was said once again to be buying Portuguese bonds in an attempt to keep a lid on yields.
The pound has continued its recent more positive tone, holding above its 200 day MA at 1.5905 and looking set to head towards the 1.6080 area.
The US dollar from being fairly flat on the day, caught a late bid tone on the back of Bernanke’s comments about the inflationary effect of higher gas prices.
Gold spread trading markets slipped back sharply from their session highs after comments from Fed chairman Bernanke suggested that the Fed wasn’t looking at further QE in the near term.
Oil prices on the other hand have remained underpinned on the back of the more positive US data, with Brent prices set to post their best month since last October.
WTI prices slipped back from their highs in the afternoon after US inventories came in above expectations at 4.16m barrels, well above last week’s 1.6m barrels.
CFDs, FX and Spread Trading are leveraged products and carry a high level of risk to your capital. It is possible to lose more than your initial investment. These products may not be suitable for all investors, therefore ensure you understand the risks involved and seek independent advice if necessary.
By Micheal Hewson, Analyst, CMC Markets.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
This material should not be construed in any circumstances as a recommendation or offer to sell or recommendation or solicitation of any offer to buy any security or other financial instrument
The material is not a personal recommendation and you should seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks if you are at all unsure, as well as confirming the legal, tax and accounting characteristics and consequences of any transaction.
