Good morning. Well now we have China having a wobble again as the next thing to drive markets lower, which they certainly did yesterday. However, having had a low just below 6500 yesterday the FTSE has bounced back overnight and risen to 6545. A dip from here and then further rises will play out nicely with the moving averages, and that decent bearishness might curtail any rate rises in the near future – maybe pushing back the Fed’s mooted September date. we will find out on Wednesday when they might give us a bit more of a clue. Greece also threw a bit of a spanner in the works yesterday with leaking of the plan for a dual currency – something that everyone had joked about as using the Drachma on the black market had become a standing joke, with a grain of truth it turns out!
US & Asia Overnight from Bloomberg
Asian stocks dropped after a rout in Chinese equities drove global shares lower.
The MSCI Asia Pacific Index declined 0.7 percent to 139.94 as of 9:04 a.m. in Tokyo, extending its five-day fall to 3.7 percent. The Shanghai Composite Index plunged the most in eight years on Monday, intensifying concern government efforts to prop up shares are unsustainable. The turmoil bolstered speculation the Federal Reserve will keep U.S. interest rates lower for longer.
“Extreme caution is needed here,” said Matthew Sherwood, Sydney-based head of investment strategy at Perpetual Ltd., which manages A$33 billion ($24 billion). “The return of market volatility in China will be a significant discussion point at the U.S. Fed. in terms of what this is telling us about the Chinese economy. There is a lot of global weakness and significant external risk.”
Japan’s Topix index declined 1.2 percent as the yen held three days of gains to trade at 123.27 per dollar. South Korea’s Kospi index retreated 0.6 percent and Australia’s S&P/ASX 200 Index slid 0.4 percent. New Zealand’s NZX 50 Index lost 0.3 percent.
After the 8.5 percent slide in the Shanghai Composite, the Standard & Poor’s 500 Index declined 0.6 percent at the close in New York on Monday, falling for a fifth day. European stocks sank 2.2 percent and emerging-market shares lost 2 percent.
China’s securities regulator assured investors the government hasn’t withdrawn support for equities.
The China Securities Regulatory Commission will continue to “stabilize” the market and “prevent systemic risk,” spokesman Zhang Xiaojun said in a statement on Monday. He was responding to media reports saying the government was pulling back from support measures adopted after the China’s stock market began tumbling last month, according to the statement.
The International Monetary Fund recently urged China to unwind its support measures, saying share prices should be allowed to settle through market forces, a person familiar with the matter said last week.
Futures on the FTSE China A50 Index, which tracks the largest Chinese companies, slipped 0.2 percent in most recent trading. Contracts on a gauge of mainland shares listed on Hong Kong lost 0.6 percent.
E-mini futures on the S&P 500 rose less than 0.1 percent. [Ref]
FTSE 100 Prediction
An overnight rise to 6545 looks good for an initial pullback towards the 6520 area where there is, at present, some decent support. As such a long from this area for another test of 6545, and possibly onto 6590 looks a decent set up, certainly for this morning. The US bulls will be hoping that the current bearishness makes the Fed think twice about rate rises in September, and to be honest I think its too soon to raise interest rates. The housing market in the UK is certainly going to get a shock when they start going up. I’ve always thought it would make more sense to have a fixed rate for the life of the mortgage rather than trying to make everyone gamble on what rates are going to do, but anyway. Back to the FTSE and if the bulls break 6545 then the top of the 30min channel at 6575 comes into play, with 6590 above that. The lows from yesterday at 6495 are the support for today if 6520 breaks, and we also have the bottom of the 30min channel at 6490. Todays pivot is 6529 which wasn’t much resistance on that overnight rise, but might hold as support on this dip back from 6545 (which has started while writing this). Generally, despite all the headlines and bearish press around, I think a rise is on the cards.