4th January 2019
The FTSE 100 held up surprisingly well yesterday, with the bears unable to break below the 6680 level. However, against a weak backdrop globally yesterday gold continued its march higher, breaking above $1300 overnight. Was nice to ride a bit of that long from $1286. It will be all eyes on the US December NFP jobs report today, out at 13:30. Forecast is 180k, versus 155k last month.
A shock sales warning from Apple and the sharpest slowdown in US factories since the crisis reignited the market’s fears of a global economic downturn in 2019. Apple shares plunged 10pc after chief executive Tim Cook admitted in an unscheduled update that stumbling growth in China had hit its iPhone sales, spooking nervy investors already fearful of the darkening global economic outlook and declining corporate earnings. Apple’s slide to an 18-month low wiped $51bn (£40bn) off its market value.
Its sales woes derailed a tentative recovery on stock markets. The Dow Jones slumped as much as 2.8pc in intraday trade in New York with its fall accelerating after the sharpest drop in a leading US factory indicator since the financial crisis. The ISM manufacturing index plunged to its lowest level in more than two years in December as the global slowdown spreads to the US.
US Markets
Treasuries rallied and the yen strengthened. The S&P 500 Index tumbled 2.5 percent for the steepest sell-off since Christmas Eve, when the gauge fell within a few points of a bear market before embarking on a 6.8 percent rally over the next five sessions. Apple plunged the most since 2013 after citing an unforeseen slowdown in China for its woes. In the wake of the company’s revenue warning, investors punished China-exposed firms. Ten-year Treasury yields dropped to an 11-month. Bristol-Myers Squibb’s bid to buy Celgene and a strong reading on private hiring for December were shrugged off by bearish investors.
Manufacturing Meltdown
A gauge of U.S. manufacturing plunged by the most since the 2008 recession a day after Apple Inc. cut its revenue outlook, fueling concern that the trade war with China is taking a bigger-than-expected toll on economic growth. The Institute for Supply Management index dropped to a two-year low, missing all estimates in Bloomberg’s survey, led by new orders slumping the most in almost five years and the steepest production slide since early 2012. Just 11 of 18 industries reported growth, the fewest in two years. “There’s just so much uncertainty going on everywhere that businesses are just pausing,” Timothy Fiore, chairman of ISM’s manufacturing survey committee, said in an interview. “No matter where you look, you’ve got chaos everywhere. Businesses can’t operate in an environment of chaos. It’s a warning shot that we need to resolve some of these issues.”
Fed Rate Cuts on Horizon?
Just over a month ago the market was pointing to a quarter-point hike in 2019, but it’s now factoring in a more than 50 percent chance of a reduction this year. That’s in stark contrast to the median projection of two increases projected by Fed officials last month. On top of that, traders are now fully pricing in a cut by April 2020. The rate on the June 2020 U.S. dollar overnight index swap, which was close to 3 percent less than two months ago, dropped as low as 2.04 percent on Thursday — suggesting a benchmark rate more than 30 basis points below the current effective fed funds rate by the middle of 2020.
FTSE 100 Trading Signals, Forecast and Prediction
For today we might well see an initial rise towards the 6767 level, if the bulls are able to break above R1 at 6740 first thing, We have decent looking fib resistance here and its a level that looks to be worth a short, though I am thinking that we may see an overall bullish day today, with an ultimate rise towards 6790+. The 30min chart has gone bullish with the overnight strength in the FTSE 100 futures, and is showing support at 6710 – we have the daily pivot and also the coral has gone green with support at this level.
If the bears were to break below the 6710 level then 6682, the recent low, is the next line of support, though 6625 is lower down and looks more likely to be seen if the bears take control.
We have the NFPs news out at 1330 this afternoon so bear that in mind as that is likely to move the US markets around a fair bit again. Gold has dropped back below the $1300 level so I expect a lot of long profits were taken there. If indices found a bit of strength over the next two sessions then gold might well drop back from this round number resistance.
If the bulls do defend the 6710 level today then the 2 hour chart may well go bullish later and cement 6726 as support – but that is far from confirmed at present, and will depend on todays action. If it does then it sets up nicely for a bull Monday next week as we go back to full power trading after the holidays (lots still on the sidelines this week).
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