CHIEF MARKET STRATEGIST
AS THE UK recovers from the long bank holiday, the whole world is feeling the hangover. Last week Spain teetered on the brink of disaster, after its planned rescue of Bankia was torn to bits by the European Central Bank. The worry now is that Spain doesn’t have the funds to bail out its various insolvent banks, and that the EU and IMF will have to step in with a bailout similar to that seen for Greece, Ireland and Portugal.
Meanwhile, Greece has disappeared off the radar, although the odd opinion poll pops up from time to time, with each one providing a different answer to its predecessor. Towards the end of the week, a barrage of global economic data threw up yet more bad news, as manufacturing in the US, China, Germany and the UK all came in below expectations. The Eurozone crisis was made on the continent, but its effects really are being felt around the world.
Global risk aversion has seen markets around the world plummet, and this bearishness is reflected in IG clients’ views on the S&P 500 index. This broader index is a more balanced view of the US economy than its more glamorous cousin, the Dow. IG clients have remained resolutely short on this market, although we have seen some closing out of short positions following a good run for the bears. Our sentiment indicator currently shows that clients are 54 per cent short.
Bullishness is still seen among clients trading oil, with the thinking evidently being that the global appetite for the black gold isn’t going to diminish any time soon, even with slowing of economic growth around the world.
In the long run, we all still need oil to keep the power on and our cars running, and IG clients are apparently in this one for the long haul.