As we’ve found out in the UK over the last few weeks it never rains, it pours. The weather in Spain is much better, but economically the situation continues to be grim.

Overnight, S&P, the ratings agency, cut the Spanish credit rating to BBB+ from A, reflecting the increased fear that the government will need to provide further fiscal support to the ailing banking sector.

To compound matters, the Spanish unemployment number came in higher than expected; a staggering 24.4 percent of the population is now without a job. The figure is higher amongst younger people, with almost half looking for work.

As labour market laws are overhauled, unemployment is likely to get worse before it gets better, meaning there will be further pressure on the Spanish credit rating and hence the rate at which Spain can borrow in the market moving forward.

Amazingly, Sterling shrugged off the negative GDP figure on Wednesday and now trades slightly higher against the Euro and Dollar than before the announcement. This is probably due to the worse than expected European news more than Sterling gaining, but the Pound is likely to come under pressure at some point over the coming week.

The US Dollar remains subdued after the Fed statement earlier in the week neither confirmed nor ruled out further easing.

The uncertain stance has left the Dollar slightly rudderless given that we are also fairly risk neutral across the online CFD trading markets as a whole (but on the negative side of neutral).

That should come to an end when the US GDP number comes out this afternoon, with expectations of an annualised rate of 2.5 percent.

 
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Ben Bernanke head of the US Federal Reserve predictably kept policy on hold whilst reducing forecasts for unemployment and raising expectations for higher near term inflation.

The economy is still expected to grow at a ‘moderate’ pace in coming quarters, with the bulk of Fed members predicting the first tightening in 2014 or beyond.

The one concession to markets was the fact that the Fed is ready to do further in terms of policy development if required.

This helped to boost risk assets overnight leaving the Greenback on the back foot. Headline releases are thin on the ground today leaving markets to consolidate gains in a relatively ‘risk on’ environment.

Sterling came plummeting down from its summit following news that the UK economy entered a technical recession after GDP unexpectedly contracted by 0.2 percent in the first quarter of the year.

Nevertheless, the fall was short lived, with Cable improving from its losses, helped by a superb reading for UK Nationwide consumer confidence in March.

However, Nationwide cautioned that the spring in confidence may be brief and therefore CFD trading investors should be wary of reading too much into this. Sterling’s gains against the euro look as though they have peaked.

Finally, there was no adjustment in policy from the RBNZ as expected, with policy rates on hold at 2.5 percent. However, governor Bollard did endeavour to talk the kiwi lower while stressing worries about the international outlook.

Concerns about kiwi strength will raise the spirit of FX interference though it may also mean a delay in rate hikes. The announcement was fairly encouraging on the domestic outlook too.

Even though rates are ‘appropriate’ according to the RBNZ there is a good chance of a rate hike in Q3. The NZD ignored Bollard’s comments, firming on the back of improved risk appetite.

 
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The UK re-entered into a technical recession after a preliminary reading of UK GDP for the first quarter by the Office of National Statistics showed a contraction of 0.2 percent, meaning two consecutive quarters of negative growth.

Most economists had forecast a small growth of 0.1 percent. The UK saw a contraction of 0.3 percent in the final quarter of last year.

This is bad news for George Osbourne and David Cameron, particularly given the revelations of the Leveson enquiry, but more so it’s concerning that the UK failed to avoid a double dip recession that many had previously forecast it would avoid.

That said, we must remember that this is a preliminary reading and first readings have been shown to change somewhat in subsequent revisions historically. As such, the negative reading is written with a pencil, rather than ink and remains subject to change. Nevertheless, this is still a bad reading.

Clearly the construction output has had an overriding effect in UK growth, with output slumping 3 percent on the quarter, which is the biggest quarterly fall in construction output since the first quarter of 2009.

Whilst slow growth is a huge issue now in the era of austerity for the Chancellor, one does not feel that the negative Q1 reading is too huge a shock to most investors or the CFD trading markets.

We already had Bank of England member David Miles admit that a negative reading would not be a surprise to him last night. Moreover, the UK construction figures since the start of the year have long cast a dark cloud over the preliminary GDP expectations as a result.

Indeed, whilst we did see the pound sterling and the FTSE 100 lose ground quickly in the immediate aftermath of the GDP release, the falls in the CFD trading index were not necessary huge.

This perhaps confirms that the double dip recession the figures from the ONS pertains the UK is now in is more likely to dominate the news headlines than dramatically change investor sentiment in the near term.

 
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Trading update from City Index.

 
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Yesterday European shares and the Euro came under renewed pressure after confirmation that Spain’s economy contracted by -0.4 percent and German PMI for April was unexpectedly down.

To add fuel to the growing fire, the Dutch PM and entire cabinet resigned piling political worries on top of economic woes.

Along with a steep fall in shares, we saw spreads widening between struggling sovereign Euro economies and Germany, in addition, the Dutch/German spread widened.

There was a lot of risk aversion in afternoon trading yesterday with the main benefactors being the USD and the JPY.

Today we have started a little brighter and bond spreads have narrowed slightly from yesterday- the main reason for this is that Dutch, Spanish and Italian bond auctions all went well helping to firm up the Euro from yesterday’s lows.

The main take from yesterday is just how quickly things can turn sour and this highlights the fickle position of the EUR FX CFDs.

Today we have seen UK data in the form of public sector net borrowing which showed that the government borrowed more than expected for March but still met its annual target.

Tomorrow we see the crucial preliminary first quarter GDP data which could show that the UK has officially fallen into recession.

The “double dip” headlines which would naturally explode from this news would certainly undermine the pound and pile pressure on the chancellor and the Bank of England.

We have seen some bright sparks in the UK economy of late in relation to unemployment data and retail sales. However, the data has been inconsistent and we have seen a weak performance in the construction sector which could lead to a negative number.

Tomorrow’s number if negative would be a huge blow psychologically to not only CFD trading investors but to the UK’s recovery and will undoubtedly hit confidence in the UK’s recovery strategy and the pound.

Conversely if we see a stronger than expected number we could see the pound rally further after a strong performance recently.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

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Once again we have political turmoil threatening to destabilise financial markets with the Netherlands coalition government failing to agree on budget cuts and as a result appearing to be on the brink of fresh general elections.

At the same time we have seen some shockingly bad data out of Europe this morning, which index CFD trading investors have proved to be highly sensitive to.

All in all, it’s been a bad news morning and this is why investors have been firmly in risk off mode, sending equities lower across Europe.

By 9.45am, the FTSE 100 had lost 80 points or 1.4 percent, whilst the DAX fell even more, 2.2 percent in reaction to the bad PMI figures.

 
Netherlands facing election uncertainty?

The situation in the Netherlands is concerning, purely on the basis that it is creating more political instability in Europe at a time when the markets want to see the Eurozone’s fiscal firewalls maintained and strengthened and EU members focusing on growth policies.

Prime Minister Mark Rutte failed to gain support from political ally, Geert Wilders, for €14bn to €16bn worth of budget cuts.

The key with the Netherlands situation is that it now makes elections look highly likely and there is every chance that the political parties could attempt to distance themselves from their support of the Eurozone debt crisis to win votes.

On top of this, failure to agree on budget cuts leaves the country’s Triple A credit rating at significant risk.

Wilder himself recently lobbied to leave the single currency and so it would appear that should a new election take place, it could be an election about the country’s support for the euro as much as forming a new Dutch government.

Chinese manufacturing PMI rose to 49.1 from 48.3 in March but remained in contraction territory below the 50 level. But it was data out of Europe earlier this morning that also added extra weight to Index losses.

 
German Flash PMI shocks

German PMI manufacturing shrank at its fastest pace in nearly three years this month, with the flash PMI measure falling to 46.3 when a small rise from 48.4 to 49 had been expected.

The fall was quite a shock, particularly given that investors were relying on German strength to drive growth within the Eurozone.

Eurozone flash PMI also disappointed badly, coming in at 46 when a small rise from 47.7 to 48 had been expected.

This morning’s data out of Europe raises yet more question marks over weak growth in the Eurozone.

 
Risk off mode

CFD shares trading investors have traded firmly in risk off mode for the start to the new trading week. The miners, financials and oil stocks are the biggest drags on European indices as a result, which is of no surprise given these three sectors are typically the first hit when investors downsize risk.

BSkyB and Vodafone shares were the only two to see their prices rise in the FTSE 100 which tells a tale of risk aversion and investors seeking defensive stocks.

Indeed, the FTSE 350 Utility sector was the only sector to post gains in early trading, qualifying this sentiment.

We have a raft of company earnings and economic data due out for the rest of the week.

One thing is for sure, given the state of play in stock markets today, investors will continue to react extremely sensitively to each and every aspect of important data that is released in the coming days in an effort to qualify global growth rates.

 
Contracts for Differences (CFD) trading, margined forex trading and spread trading carry a high level of risk to your capital. You can lose more than your initial investment. These types of trading may not be suitable for all investors. Ensure you fully understand the risks involved and seek independent advice if necessary.

Trading update from City Index.

 
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Markets were dealt a surprise yesterday as the Consumer Price Index (CPI) rose in the UK to 3.5 percent up from 3.4 percent in February according to the Office for National Statistics.

The ONS blamed higher food prices specifically soft drinks, bread, cereal, meat, fruit and vegetables coupled with rises in clothing & footwear.

However, there was some good news as utility bills were lower than one year ago following energy companies reducing tariffs in February last year.

All eyes will know be on the Bank of England as this latest rise could reduce the likelihood of additional Quantitative Easing in next months MPC meeting but with stuttering growth the Bank of England may have no choice.

So far today in the UK we have seen the UK Jobless Claims figures fall for this first time since last spring.

Unemployment fell by 35,000 to 2.65m according to the ONS leaving the overall rate at 8.3 percent.

Furthermore we saw voting in the Bank of England for interest rates and QE voting come in at 9-0 and 8-1 to keep rates on hold and maintain the contribution at £3.25bn.

In online CFD trading, Sterling has rallied as a result of these figures and GBP/EUR currently sits at 1.2212, the highest reading since September 2010.

Cable has also risen and is fast approaching the key psychological level of 1.60 currently trading at 1.5979.

In other financial news Warren Buffet has announced he has stage one prostate Cancer which will create further hype around the successor to his Berkshire Hathaway business.

As for the rest of this week we are pretty light on data with inflation data in New Zealand, Canada and the Germany of any real significance.

Finally, on Friday watch out for any press releases from the G20 Finance Ministers Central bankers meeting in Washington.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

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Italian borrowing costs soared yesterday following new concerns about their ability to reduce its high levels of debt.

In the latest auction the Italian government paid an interest rate of 3.89 percent from 2.76 percent last month and this has been against the recent trends but FX CFD trading investors are becoming increasingly sceptical over Italy’s and Spain’s ability to reach deficit targets.

As a result, newly elected governments in both countries have announced austerity measures to reach strict debt reduction targets.

Coupled with these figures, Greece published its latest unemployment data yesterday indicating a further rise with the overall rate pushed to 21.8 percent up from 14.8 percent at the same point last year.

Despite the bad news the Euro remains towards to the higher of its recent trading range against the Greenback currently trading in the high 1.31s and Sterling trades just above 1.21 at 1.2104.

So far this morning China has published its latest growth figures revealing the world’s second largest economy has grown at its slowest pace for nearly three years.

GDP increased by 8.1 percent down from 8.9 percent in the previous quarter and below expectations of 8.3 percent. The numbers are being blamed on the fall in demand for exports from the Europe and the US and consequently we could see risk assets hit hard today.

We have a light day in terms of headline data but so far we have seen German inflationary data which came in exactly against forecast at 2.3 percent.

Later this afternoon we have CPI for the US who are expecting an annual figure of 2.7 percent.

Finally to end the week we have the Michigan confidence figure, which assesses consumer confidence on personal finances, business conditions and purchasing power based on telephone surveys and provides a real time assessment of US consumer sentiment.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

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European markets have, not surprisingly, plunged today as the hangover effects of the last weeks disappointing Non-Farm Payrolls was the initial trigger for the risk off sentiment.

With the head of Spain’s central bank stating that the regions banks may require further capital should the economy deteriorate further, it begs the question whether the county can survive a recession while inhibited by severe austerity.

The residual effect of a weak bond auction last week is sending Spain’s 10 year bond yield to levels not seen since December.

A test of the 6 percent level is more than likely as the pressure is on the Spanish government to show it can ignite economic growth as well as control its budget deficit in an effort to avoid a bailout.

The Spanish IBEX-35 has now hit a 3 year low as the effect of the ECB’s LTRO and indeed the global stimulus measures fades.

The growing dissent against Monti’s labour market reform has also seen Italy’s bond yields march higher.

Given that the Italian Treasury will seek to auction €11bn of bills tomorrow followed by an additional auction for €5bn on Thursday; Monti may well be regretting his
recent statement that the euro crisis is ‘almost over’ as 10 year yields surpass the 5.62 percent level.

In stark contrast, Germany’s 10 year bund yield at levels last seen in August -1.65 percent; and the economic powerhouse has witnessed its 2 year note yield drop below that of Japan’s for the first time.

The country also showed a trade surplus for March, of €13.6bn exceeding conservative forecasts of €12bn.

The Sentix Investor Confidence data appeared to encapsulate the recent market action missing expectations by a wide margin, coming in at -14.7 against the consensus -8.2.

On the FTSE itself, the mining sector has had a torrid day with Vedanta Resources down the bottom of the UK index as the global growth fears and fear of contagion within the Eurozone re-emerged.

The stand out performer on the day is Randgold Resources rising by as much as 9 percent intra-day as the threat of international sanctions was removed following the signing of an agreement by coup leaders in Mali, home of the elusive Timbouctou.

US CFD trading markets saw a slight bounce in early trade as investors pondered whether QE would be forthcoming but have they have since slipped back in anticipation of Alcoa’s earnings result due after the closing bell.

With Fed member, Lockhart due to speak at an event this evening, one can only hope that he is a little more loose-lipped than Bernanke in respect of interest rate policy rhetoric.

FX CFD trading markets have been rather range bound with the commodity currencies, in particular the Kiwi dollar displaying weakness while the Japanese Yen has advanced against the greenback on safe haven interest.

The single currency has continued to struggle anytime it has got anywhere close to the highs at 1.3380/90, once again sliding back as Spanish and Italian bond yields edge back up.

The revelation that Spanish debt to GDP ratio will increase to 79.8 percent of GDP from 68.5 percent has unnerved investors who fear that the new budget measures will choke back growth potential even more.

Oil prices have slipped back in conjunction with equity markets in part due to softening domestic demand in China.

Gains should be limited in the short term given that inventories continue to remain at elevated levels as a result of the warmer weather.

Both WTI and Brent should remain well supported by the $100/bbl and $120/bbl marks respectively.

The global slowdown has seen copper prices break towards the bottom of the 6 month price range falling below $3.68lb and is currently finding support at the 100 day MA. A break below this could well see $3.5lb in view.

Gold and silver prices have seen a bounce as investors speculate on the potential for additional QE.

The return of Indian jewellers following a 3 week strike is also supporting prices. The release of the Beige book and the CPI from the US later in the week should help decide direction for the shiny metal.

CFDs, spread trading and FX are leveraged products and carry a high level of risk to your capital as prices may move rapidly against you. It is possible to lose more than your initial investment and you may be required to make further payments. These products may not be suitable for all customers therefore ensure you understand the risks and seek independent advice.

CFDs trading update from Michael Hewson, Market Analyst, CMC Markets.

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With Greece completing the PSI bond swap with over 95% participation from debt holders, it looks like the Greek drama that has preoccupied financial markets over recent months is finally coming to a conclusion.

After the second LTRO in February, that provided regional lenders with an additional €1tn, the CDS payouts now triggered by ISDA shouldn’t be a significant game-changer.

With CFD trading investors shifting their focus away from the Greek saga, the markets are likely to turn their attention to the core fundamental issues shaping the outlook for Europe.

The outlook for economic growth is bleak and as EU governments continue to be in deficit-cutting mode, any help to alleviate the downturn is likely to come in the form of monetary policy, which points to additional ECB easing.

The fundamental outlook for the UK doesn’t seem any better either, with the ongoing weakness in the labour market paired with the slowdown in global trade fuelling fears of a double-dip recession.

The Bank of England refrained from releasing a policy statement on Thursday after the central bank kept the benchmark interest rate at 0.50% and maintained its asset purchase programme at £325bn.

Looking ahead, this is a quiet week in the way of key economic data and CFDs news.

Traders will be closely eyeing the FOMC interest rate decision and the accompanying monetary policy statement on today.

The focus will be on the central bank’s assessment of the economy as data continues to top estimates following Friday’s stronger than expected NFP report.

The main risk events for investors to watch out for this week will be any European commentary from the Eurogroup and any subtle signals from across the Atlantic on a third round of quantitative easing.

Of equal interest will be any signs of worry from the Middle-East, as energy markets remain fixated on the mounting geopolitical tension between Iran, Israel and the West.

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Another expectation beating employment report from the US on Friday has the CFD trading markets in a buoyant mood this morning.

The headline number was 227K jobs created in February against a forecast of 210K, with strong upward revisions to both December and January numbers.

This marks the third straight month of strong jobs growth with gains spread across different sectors of the economy. One negative was that construction jobs showed flat growth for the first time in a couple of months.

Interestingly we have again seen the dollar strengthen on the back of positive US developments, which flies in the face of the risk-on, risk-off paradigm that has dominated FX CFD trading in the US Dollar over the last few years.

Commodity currencies initially surged on the news but have cooled off as we start the week.

Looking ahead this week we have several big ticket releases to look forward to. Tomorrow German economic sentiment is followed by US advanced retail sales and the Fed interest rate decision.

The market expects a strong increase in retail sales from last month and Friday’s employment report is fuelling further optimism of a stellar number. The risk therefore is to the downside in terms of the Dollar if we get a disappointing figure.

The Fed meeting should be a non-event, but talk about sterilized QE over recent days by the Fed Chairman will keep market interest high.

Eurozone inflation figures plus the ECB monthly report (useful for tracking ECB borrowing by the banks) are due later this week.

Also worth watching is the Swiss Interest rate decision, not for interest rates directly but for chatter over an increase in the Swiss Franc peg which, if undertaken, would cause significant movements across the FX markets.

 
CFDs, margined forex and financial spread trading are leveraged products. They carry a high level of risk to your fund. It is possible to lose more than your initial capital outlay with these products and they may not be suitable for all investors, do ensure that you fully understand the risks involved, seek independent financial advice if necessary.

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