Good morning. The big news initially yesterday was the Shell/BG takeover which saw the FTSE adda very rapid 50 points on the news, then flat line around 7000 for the rest of the day. When the bulls could hold above that 7000 level we got the drop back to a low of 6930. It was a bit annoying that the rise stalled at 7012 and didn’t quite reach that 7025 level where we had some fib resistance – maybe that would have been just a bit too neat. Then to close out the day we had the Fed minute released from the march meeting which showed a split on the future of interest rate rises, some want to start raising, some want to keep them at near zero. Initially the market dropped, then once digested decided it wasn’t too bad so regained some of that ground. The way the bulls failed to hold above 7000 yesterday could be a bit bearish for the very short term for a dip towards 6885, especially if they can’t break 6980 today
US & Asia Overnight from Bloomberg
Hong Kong stocks surged the most since 2009 amid volume more than four times the average and a frenzy of buying by mainland investors. Gold dropped and oil climbed after record U.S. supplies triggered the biggest slide in two months.
The Hang Seng Index jumped as much as 6.4 percent and touched the highest level since 2007 before trading 3.6 percent higher at 12:29 p.m. in Tokyo. A gauge of volatility on Hong Kong’s benchmark index has more than doubled in two days. Gold fell 0.4 percent and U.S. crude added 1.3 percent after tumbling 6.6 percent Wednesday. The Bloomberg Dollar Spot Index was little changed after earlier climbing 0.2 percent. Standard & Poor’s 500 Index futures fluctuated.
Hong Kong shares are surging amid bets that a valuation discount to peers in Shanghai will narrow amid eased limits on investment flows between both markets and government support for equities. Fed officials were split on whether to lift the U.S.’s near zero rates as soon as June, with some arguing oil’s drop and a strong dollar could damp inflation, minutes of the March meeting showed Wednesday. Oil stockpiles expanded the most in 14 years last week.
“Trading has become very volatile in China, but sentiment is still very strong,” Ang Kok Heng, chief investment officer of Phillip Capital Management Sdn., which manages $428 million, said by phone in Kuala Lumpur. “When people are confident, they just jump in. Equities are the best choice in a low interest-rate world before the U.S. raises rates. Greece is still an uncertainty, while a weaker euro would mean better earnings in Europe.”
Rapid Advance
The Hang Seng Index briefly advanced above 28,000 points, a level last seen in December 2007, before moving back toward 27,000. None of the 50 companies in the Hong Kong benchmark index declined. The 14-day relative strength index, a technical measure of price momentum, rose to 86.6, the highest since 1993 in early trading and a signal that gains may have been too rapid.
The Hang Seng China Enterprises Index climbed 3.3 percent after jumping as much as 7.3 percent in early trading, the biggest intraday spike since 2011. The Shanghai Composite Index retreated 1.2 percent. The Hong Kong gauge trades at 9.4 times projected earnings, compared with 15.3 in Shanghai, according to data compiled by Bloomberg.
Oil Slump
Japan’s Topix index rose 0.4 percent, heading for the highest level since November 2007. The yen weakened 0.2 percent to 120.32 per dollar.
West Texas Intermediate oil was at $51.07 a barrel in New York. The contract climbed to its highest level this year before Wednesday’s retreat, which marked the biggest one-day drop since Feb. 4.
Brent added 1.2 percent to $56.22 a barrel in London. Crude is down more than 50 percent since June after the U.S. shale boom added to global supplies, while OPEC members refused to reduce output.
Saudi Arabia increased oil production in March to the highest level in at least 12 years, while the U.S. Energy Information Administration said Tuesday that crude prices could tumble $15 a barrel next year if sanctions are lifted following a final deal with Iran on its nuclear program.
Gold for immediate delivery slipped below $1,200 an ounce in a third day of declines. Silver dropped 0.9 percent.
Aluminum in London fell 0.3 percent to the lowest since March 18. Alcoa Inc., the largest U.S. producer of the metal, forecast a global oversupply for this year and the slowest rate of growth in global consumption in three years amid rising Chinese output. [Ref]
FTSE Outlook
I have initial resistance on the 30minute chart at 6978 from the coral trend line, which has turned to a bearish trend following yesterday dip, so I think we may get a dip from this area. Todays pivot is 6969 on IG, so another resistance here. The EMAs on the 30min have gone bearish too, hence why I think we may get an initial dip to start the day. I mentioned 6885 above and that is the 25ema on the daily so would act as support as those EMAs are bullish. Nothing like a slightly confusing picture is there! Anyway, if the bulls did manage to break through that coral line at 6878, the next level to watch is the top of the 10 day Bianca at 6995, then yesterday’s high at 7013. Above that 7038 and 7070 are the next levels which are the tops of the 2 Raff channels.
Support for today is 6930 where we have the bottom of that 30 minute channel, followed by the 6885/90 area where we have that 25ema on daily, and also a PRT major support line on the 30minute chart (the thick green line). The 200ema is also around this area so will be interesting to see if we do manage to hold this. If not then 6850 is support lower down.