Good morning. Well when I worked out that 7060 resistance area area yesterday I didn’t think it would be quite that good. It was touched very briefly before the market fell back, and then kept falling. Even 7000 didn’t put up much of a fight. Mostly the afternoon sell off was attributed to a raft of poor US data (this Telegraph article sums it up pretty well), including a 0.2% GDP figures for Q1 2015, though interestingly paints a slightly more optimistic picture towards the end – it certainly sets out a good case for the S&P to get that rise from this 2100 area to 2140 (before much larger declines). After a day of such large declines (the Dax dropped over 400 from his pivot at 11875!) I expect to see a bit of a consolidation day, especially if the S&P holds around this 2100 area (25ema support at 2098). Chris Williamson, chief economist at Markit, said: “A stalling of US economic growth at the start of the year rules out any imminent hiking of interest rates by the Fed. “The slowdown looks temporary, as a rebound from the first quarter weakness is already being signalled by forward-looking survey data, but the sustainability of any upturn is by no means convincing yet.” On the positive side, the Fed will keep interest rates low for a while longer.
US & Asia Overnight from Bloomberg
Asian stocks dropped, with the regional benchmark paring its biggest monthly gain since September 2013, as the Federal Reserve downplayed weak U.S. economic growth and kept raising interest rates on the table for later this year.
The MSCI Asia Pacific Index fell 0.5 percent to 155.69 as of 9:01 a.m. in Tokyo, heading for a 6.4 percent advance this month. The Standard & Poor’s 500 Index slipped 0.4 percent on Wednesday after data showed the U.S. economy grew just 0.2 percent in the first quarter, with Fed Chair Janet Yellen attributing part of the slowdown to “transitory factors.” E-mini futures on the S&P 500 Index fell 0.1 percent.
“The jury is still out on whether the weakness points to a more structural slowdown in the economy,” Mark Lister, head of private wealth research at Craigs Investment Partners Ltd., which manages about $7.2 billion, said by phone from Wellington. “While plenty of people are expecting the rate hike to be pushed back even to 2016, its important to watch the next piece of economic news to gauge whether the weakness we’ve seen was a one off or the beginning of a trend.”
Analysts had been expecting the U.S. economy to expand 1 percent in the first three months of the year. A run of disappointing data has cast doubt on how quickly the Fed can meet its goals for full employment and stable prices. Policy makers have said they expect to raise rates this year for the first time since 2006, and that their decision will be guided by the latest data. Economists at Bank of America Corp. cut their second-quarter growth forecast to 2.5 percent from 3.5 percent.
Topix Drops
Japan’s Topix index dropped 1.1 percent, its biggest decline in a month, as markets resumed trading after a holiday. Industrial production slid 0.3 percent in March from a month earlier, compared with estimates for a 2.3 percent decline.
South Korea’s Kospi index lost 0.4 percent. Australia’s S&P/ASX 200 Index declined 0.3 percent, New Zealand’s NZX 50 Index added 0.3 percent. Markets in China and Hong Kong have yet to open.
Chinese stocks trading in Hong Kong on Wednesday capped their first back-to-back loss in a month, with the Hang Seng China Enterprises Index sliding 0.8 percent after commodity shares slumped on lower profits and brokerage Citic Securities Co. restricted the number of shares eligible for margin lending. The move comes a day after the China Securities Regulatory Commission warned new stock investors not to overlook the risk of investment losses. [Ref]
FTSE Outlook
As mentioned above if the S&P holds the 2100 area for support then we could get a bit of FTSE support too. The ASX200 led the way pretty well yesterday with their bearish Wednesday giving the FTSE one of its own, and Thursday’s ASX action has been mostly flat, ranging between 5750 and 5800. The initial levels of interest on the FTSE today are support at 6945 where we have the bottom of the 10 day Bianca (20 day is slightly higher at 6952), and the daily pivot for resistance at 6983. As I write the Moving Averages I use are still bearish, hence why I am expecting an initial dip, though if the Dax bulls last night (rising from 11370 to 11490) are anything to go by there are still some buyers around. Below the Bianca channel the bottom of the 10 day Raff is 6923 and coincides with yesterday low, so could be a level to try for a bounce, though 6900 below this might well be stronger. However, I think we are more likely to see a bit of optimism today, and a if the pivot breaks then we are looking at resistance above that at 7023 and 7058, though I think testing these levels might see some bears appear. A lot will depend on the S&P today I think as its at a fairly crucial juncture.
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