Good morning. End of July already, doesn’t time fly! Yesterday remained pretty bullish as expected unfortunately not quite dipping to the 6620 order level. That said, the bears had a good go off 6700, timing that drop with some Greek news (still simmering away in the background). Talks over an €86bn bail-out for Greece have been thrown into turmoil after just four days as the International Monetary Fund said it would have no involvement in the country until it receives explicit assurances over debt sustainability. An IMF official said the fund would withhold financial support unless it has guarantees Greece can carry out a “comprehensive” set of reforms and will be the beneficiary of debt relief from its European creditors.
US & Asia Overnight from Bloomberg
Asian stocks advanced, while the dollar headed for its biggest monthly increase since January on speculation the Federal Reserve is moving closer to raising interest rates. Oil extended its worst monthly rout this year.
The MSCI Asia Pacific Index rose a third day, adding 0.5 percent by 1:55 p.m. in Tokyo and paring its July drop to 3.3 percent. Japan’s Topix index increased 0.5 percent and Australian shares strengthened. The Shanghai Composite Index lost 1 percent and U.S. stock futures fell 0.1 percent. The Bloomberg Dollar Spot Index headed for a 2.5 percent monthly gain. U.S. crude sank 0.7 percent and gold slid 0.4 percent.
The dollar’s ascendence in July amid mounting bets on a U.S. rate rise in September has cascaded through financial markets, hitting commodities already in retreat on supply gluts. Emerging markets have been a chief casualty, with the wild gyrations in Chinese equities dealing another blow. Developing-nation stocks are headed for their worst month since 2012 and currencies have slumped 8 percent this year.
“The U.S. dollar remains supported by the looming Fed tightening cycle,” Imre Speizer, a senior market strategist at Westpac Banking Corp. in Auckland, said by phone. “As we get closer to that date and get possible clues from speeches by officials over the next few weeks, I expect the dollar to auto-resume its upward trend.”
Commodity-linked currencies have borne the worst losses, with Brazil’s real, the Australian dollar, Canada’s loonie and the South African rand among the five biggest decliners against the dollar in July, down at least 3.9 percent. The euro emerged from the Greek crisis with a 1.8 percent drop, while the pound performed best among its 16 peers, slipping 0.7 percent.
The Bloomberg Commodity Index has lost 9.8 percent in July, the most since September 2011, after sinking to a 13-year low.
West Texas Intermediate oil slumped 19 percent, its worst monthly performance since December, while gold fell 7.5 percent and is set for its biggest drop since 2013 after falling to a five-year low. Copper slid 8.7 percent in July.
Emerging-market stocks are heading for their biggest drop in any month since 2012. The Shanghai Composite Index has tumbled 14 percent, the biggest loss among 93 global benchmark gaugestracked by Bloomberg, as margin traders cashed out and new equity-account openings tumbled amid a $3.5 trillion rout.
Japanese stocks rose on Friday, with the Topix index set to cap an increase in July, as investors watched quarterly results from more than 300 companies, the busiest day in the earnings season. Finance companies and shippers gained, while commodity industries fell.
Shares of Noble Group Ltd. slumped 13 percent in Singapore. The stock has lost more than 60 percent since the middle of February when a group calling itself Iceberg Research published criticism of its accounting, which the firm has rejected.
While China concerns contributed to losses in Asian equities in July, better-than-expected profits in the U.S. helped boost the Standard & Poor’s 500 Index by 2.2 percent. The MSCI All-Country World Index has gained 0.5 percent, with the Stoxx Europe 600 Index up 3.9 percent, the most since February. An update on euro-area consumer prices is due Friday.
U.S. gross domestic product rose at a 2.3 percent annualized rate in the second quarter, the Commerce Department said Thursday, after a previously reported contraction for the first three months was revised to a 0.6 percent gain. The median forecast of 80 economists called for a 2.5 percent advance.
Fed Chair Janet Yellen is guiding the central bank toward its first rate increase in almost a decade as the U.S. approaches full employment. The Fed said in a statement Wednesday that it will tighten monetary policy once it sees “some further improvement in the labor market.” Economists have put the chance of a rate increase at the Fed’s September meeting at 50 percent. [Ref]
I think yesterday general bullish sentiment will continue going into the end of July and probably remain for August as well. As such, buy a dip down to the pivot at 6666 today could well be a decent trade for another test of the 6700 level and probably a break. There are a few resistance levels of note just above that though, 6707, 6730 and 6780. We have pretty decent rising channels on both the 10min and 30min charts, but just need to be mindful of the fact that we are testing the top of the 10 day channels, both Raff and Bianca. As such the bulls have momentum, but a hurdle to jump as well. Support below the pivot is 6625 and 6620, the latter should provide decent support if it were to get that low.