21st January 2019
Trump says he’s got a way out of the partial U.S. government shutdown, China’s stock rally could have legs and Asian equity markets are poised to kick off the week on a positive note. US markets are closed today for Martin Luther King day.
Friday Overview
Global stocks racked up a fourth straight week of gains after being boosted by speculation that China has offered to eliminate its trade imbalance with the US.
China could snap up more goods to reduce its trade surplus to zero by 2024 in a bid to make a breakthrough in trade talks with the US, Bloomberg has claimed. It followed earlier reports suggesting that Treasury Secretary Steven Mnuchin has proposed lifting some or all of the tariffs on Chinese goods worth $250bn.
Investors ignored a hasty denial from the US Treasury, piling back into global stocks on hopes that a 90-day ceasefire between the world’s two largest economies will result in a trade deal.
The Trump administration is eager to calm nervy markets after the worst year for stocks since the crisis. Stocks tumbled in 2018 as the trade war started to impact corporate earnings, adding to mounting global growth worries.
The FTSE 100 jumped 2pc following the string of positive reports while Wall Street rallied strongly for a second day, the Dow Jones gaining 1pc.
The week ahead
Trump announced his plan to end the government shutdown — and it was immediately panned by both Democrats and Republicans. He offered to extend protections for so-called Dreamers in exchange for $5.7 billion to fund a border wall. House Speaker Nancy Pelosi said the proposals were “a non-starter,” but the No. 3 House Democrat later offered a path to a deal focused on a more permanent solution for undocumented individuals in the DACA program. The shutdown reached its 30th day on Sunday.
At the end of October, when Chinese shares were in freefall, the chief investment officers at Deutsche Bank Wealth Management made a bold call: the worst was over for the world’s second-largest equity market. Since the start of November, the MSCI China Index of the nation’s shares has rebounded more than 7 percent.
Positive Start
Equity futures in Asia are indicating a positive start to the week, extending a trend that’s seen global shares climb the past four weeks. Overnight data releases saw Chinese Q4 GDP print in-line with expectations, whilst retail sales and IP exceeded forecasts. The S&P 500 climbed 1.3 percent on Friday and the yield on 10-year Treasuries rose to 2.78 percent. Currency traders will be scrutinizing U.K. Prime Minister Theresa May as she presents Parliament with an alternative Brexit proposal after her first effort was defeated.
FTSE 100 Trading Signals, Forecast and Prediction
We saw another test of the 7005 level last thing Friday and has dropped off a little bit since to test the 30min coral area at 6973. The bulls will obviously be keen to break above the 7008 resistance level where we have the fib line. The US is closed today for Martin Luther King day so bear that in mind.
If the bears take the driving seat initially then I am thinking that we will drop down towards the 6900 support area, which is showing as decent support on both the 2 hour chart and the 30min. On the latter we have the 200ema and also the fib and S1 here, so its a level that should be well defended by the bulls.
If we did drop back from this 7000 area again then it will be aiming to trap some bulls that have hopped on Friday. I mentioned in Friday’s email that I was feeling more bullish, and we have seen the 6830 daily support area hold and had a decent rise from this area so far. The daily support has moved up on the moving average to 6856 so we should we dip that low again it may well see further buying. The 2 hour support on the S&P has moved up to 2650 so we may see some also buying at this level later (S&P daily support is at 2589 currently).
We could well be on for a dip and rise pattern today, as looking at the ASX200 they had a fairly bearish session, despite Asia generally being fairly positive. I am looking for the 6973 level to hold initially anyway this morning, but the big test will be at the 7008 level. That would be the third test of that area, and if it breaks then we could see a rise towards 7052 and 7094+.
So fairly simple plan today looking to buy the dip later on for a possible V shaped play today.
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