Investors downsize risk ahead of Bernanke speech at Jackson Hole

Investors looked to downsize the amount of risky assets they had built up over the course of the week on Friday as traders eyed a much hyped speech by Bernanke at Jackson Hole later today where there is a hope that he could insinuate that the Federal Reserve is ready to start quantitative easing should US growth continue to slow and unemployment remains stubbornly high.

With there now being such a heavy weight of expectations towards Bernanke today it is only natural that investors are not going to take too many risks in the run up to the speech and of course we also have USGDP this afternoon which will be watched with interest. After yesterday’s sharp price downturn in the afternoon, where the DAX fell over 200 points in a matter of minutes, investors are trading with a defensive stance today, to help protect themselves from any more sudden and sharp price turns and a Jackson Hole disappointment.

The result of this is broad weakenss for European Indices, with theFTSE 100 losing 30 points by mid morning, whilst heavier losses were seen in the DAX and CAC.

Investors are a fickle bunch. Earlier in the week it seemed there was some hope that a form of QE3 may be announced at Jackson Hole but that hope seems to have dissipated a little in the last 48 hours. In truth, I think investors were looking for reasons to bargain hunt and as soon as prices increased at the earlier part of the week, they have been quick to lock in their gains in case disappointment comes from Jackson Hole. There remains hopes that some form of support may be announced from Bernanke, perhaps not imminently but should conditions deteriorate further.

It is shaping up to be a very interesting and potentially volatile afternoon, with US GDP data out at 1.30pm followed by Bernanke’s speech at Jackson Hole. Both factors are likely to play a significant role in how European equities close out the week.

We have already seen investors cash in their gains in the key banking stocks after yesterdays strong sector gains, with shares of Lloyds Banking Group subsequently falling 3%. The FTSE 350 banking sector saw losses of 1% in trade to be the key drag on the UK Index.

Shares of AMEC, the engineering firm, was the worst performing stock on the FTSE 100, with prices falling 5% as investors reduced their holdings in reaction to a downgrade in stance from Societe Generale. The bank cut their guidance to a hold from a buy recommendation in reaction to the firms disappointing first half results published yesterday, whilst also cutting their EPS expectations.

UK GDP Q2 remains at 0.2%
There was little reaction to the fact that a revised reading of Q2 UK GDPwas unchanged at 0.2% growth. UK growth remains anaemic and certainly the market is hoping that should UK inflation start to recede, the Bank of England’s hands may be more free to stimulate the economy through QE.