London, United Kingdom (PressExposure) July 12, 2011 -- Giles Watts, Head of Equities at City Index (http://www.cityindex.co.uk/), provides insight into the market activity that shaped spread betting and CFD trading on July 12th:
"Investor fears over a deepening of the eurozone sovereign debt crisis sent stock markets plunging yet again on Tuesday. The FTSE 100 fell 2% at one point, whilst the Italian Mib lost 4% and the DAX and CAC both lost between 2.5% to 3% in early trade.
Investors in risk off mode Investors are in a strong risk off mode, fleeing risky asset classes on fears of Italy and Spain being dragged into the sovereign debt nightmare. We have seen higher risk asset classes such as banking and mining stocks across Europe slump as a result. UK bank Barclays has lost 2.5% on the day, whilst Italian banks, such as Intesa SanPaolo, have been hit the hardest and continue to trade with a fear induced bearish edge. Whilst defensive safe haven asset plays such as the US Dollar and the yen have gained against a range of currencies such as the euro and sterling.
Should Italy and/or Spain start to encounter the sort of ill confidence the market has shown towards Greece over the past six months, and subsequently require some form of assistance from the EU and IMF, it would likely deepen the sovereign debt crisis severely and potentially trigger much more volatile ramifications in the global financial markets.
By GDP in the eurozone, Italy and Spain closely follow Germany and France and this means the sheer weight of aid potentially needed should either or, even worse, both countries require one, could be huge and hard to achieve in the current climate. The moves seen in the market lately for both stocks and bonds emphasises the uncertainty and unease that investors are dealing with over which way the debt contagion situation could turn. Much of the sharp price moves seen over the last 48 hours remain borne out of speculation and uncertainty.
We have seen the Italian Mib lose nearly 15% in value over the last seven trading sessions, whilst some banks such as Intesa SanPaolo has lost a quarter of their value in the same time frame. These are huge moves not seen since the heights of the credit crunch.
UK Inflation weaker than expected, giving BoE breathing space UK Inflation in June fell by 0.1% when a small rise of 0.2% have been expected by the market, meaning that the annual inflation rate dropped from 4.5% to 4.2%. The fall in inflation is a much welcomed move for the Bank of England, who have been stuck between a rock and a hard place for some time trying to balance interest rate outlooks with inflationary pressures and anaemic UK growth. The fall of UK Inflation to 4.2% is likely to give Mervyn King some much needed breathing space and lower the pressure applied on the UK's Central Bank to hike interest rates early next year. As a result, the sterling fell sharply against the dollar, making an already poor days trade even worse for the pound."
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