27.07.12 Friday Morning

The trading week began with a selloff. Investors shed equities as concerns returned back to Spain as 10-year bonds hit over 7.5% due to concerns that Spain may require a bailout. Banks bore the grunt of the downward spiral as investors were concerned over UK bank’s exposure to Spain’s crippling debt levels. Furthermore, with a lack of economic data out on Monday to help boost some optimism into the markets, Monday proved a dire start to the week.

Tuesday also failed to impress the markets. Bulls once again failed to wrestle any optimism from the bears as a host of poor eurozone data, including worse-than-expected German Services Flash PMI as well as poor French Manufacturing PMI further depressed the markets. The short-selling ban across Italian and Spanish equities announced on Monday also continued to leave a sour taste in spread betting investors’ appetite for risk.

Midweek provided some degree of hope, as opportunistic spread betters sought bargains in the heavily battered mining sector. This led most European markets to trade flatly, shifting between small gains and losses as spread betters refused to take long-term positions amidst fears over the Eurozone debt crisis as well as news released on Wednesday that UK GDP contracted, again. Although the data was a preliminary release, the data reminded us that the eurozone debt crisis is really as contagious as the markets fear.

European markets opened slightly higher on Thursday, tracking positive Asian gains overnight as once again opportunism and bargain hunting persuaded spread betters to shift to a risk-on approach and dabble in sectors which many argue to be over-sold. Furthermore, the announcement that the European Stability Mechanism may be awarded a banking license to augment their exposure to further capital, and therefore refrain from installing a ceiling to aid some debt ridden eurozone nations, provided some comfort to the markets. However, once again, the banking sector held back gains as Lloyds Banking group reported on Thursday. The bank reported a half year loss of £449 million and an increase in its provision to cover the payment protection scandal by £700 million.

Despite this, we finally observed bulls breaking through with vengeance during the afternoon trading session following comments by the European Central President, Mario Draghi, that the ECB is ready to do whatever is necessary to preserve the Euro. Global markets surged and even the euro itself caught a break from its recent spell of sell-offs. Although sceptics would likely point out that Draghi failed to announce any new policies to support the faltering currency, but simply regurgitated what the markets actually wanted to hear.

The problems of providing the markets with they want to hear, but failing to provide a policy to support this was evident on Friday. Global markets retreated from Thursday’s gains as Draghi’s artificial comments reminded investors that they were still in the same situation they were yesterday, and the eurozone debt crisis was still in crisis mode. However, Barclays provided some positive news and reported pre-tax profits of £4.227 billion which were up 13% from last year and squashed analyst’s estimates. The US also provided the markets with a gift on Friday, showing advanced GDP figures were generally in line with expectations at 1.6% and potentially providing traders with a positive finish to global trading this week.

Next week we have an abundance of corporate announcements to entertain the markets, alongside the Olympics of course. Heavy weight earnings are due from HSBC, National Grid, BAE systems as well as Next, to name a few. Furthermore, next Friday we also observe the potentially market-moving Non-farm employment change from the US.