28th August 2019
- Italy’s FTSE MiB surges on hopes of a Five Star/Democratic Party tie-up to avoid elections
- Five Star want Giuseppe Conte to remain as Prime Minister
- FTSE drags feet as European equities enjoy relief rally
- German business confidence nears seven-year low amid recession fears
The FTSE 100 missed out on a European equities relief rally on Tuesday, as exporter pressure from the strengthening pound and a big drag from British American Tobacco kept the blue-chip index firmly on the ground. The mid-cap FTSE 250 outperformed the top index, as several stocks seen as exposed to Brexit grabbed gains for the second session in a row.
Europe’s star performer was Italy’s FTSE MIB, which surged as the Five Star movement and Democratic Party held talks over forming a leftist coalition. Investors were encouraged as the prospect of avoiding a fresh general election — with the extended doubt that would entail — became more likely.
With further coalition talks planned at the close of trading, the FTSE MIB ended on a high, gaining 314.47 points, or 1.52pc.
That positivity, and the absence of any sharp post-G7 news on the trade war, was enough to prompt a rally across continental stocks, with respectable gains of around 0.6pc for most of Europe’s blue chips.
Dragging its feet was the FTSE 100. As well as some poor individual stock performances, it felt the downside of a big day for the pound, which climbed strongly against the euro and dollar.
If sterling can keep up gains over the next couple of days, it may reach pre-Boris Johnson levels again.
China Prepares For the Worst
The majority of negotiators in Beijing tasked with navigating trade tensions with the US are less than convinced that a deal will actually materialize ahead of the 2020 U.S. elections, according to Chinese officials familiar with the talks. Trump’s on-again, off-again attitude towards China is being seen as a real obstacle, they said, in a signal that they are concurrently girding for a decoupling from the world’s biggest economy. They added that it is dangerous for any official to advise President Xi Jinping to sign a deal that Trump may eventually break. Trump’s recent assertion that Beijing had over the weekend made a phone call to his administration to discuss trade is yet to be confirmed by China, and is the latest in a series of claims that has added to Chinese skepticism.
Mixed Asian Session
Asian equity markets struggled for direction after the subdued performance on Wall St, where major indices failed to sustain initial gains. Investors are digesting the most recent twists in the tumultuous trade talks between China and America. Futures slipped in Tokyo, were little changed in Seoul and pointed higher in Hong Kong. Treasuries rose, while the dollar was little changed. The S&P 500 fell Tuesday after Chinese officials questioned statements by President Donald Trump about trade discussions between the two countries. Crude jumped on expectations of shrinking U.S. inventories.
FTSE 100 Trading Signals, Forecast and Prediction
The bulls fought back a bit after yesterdays initial decline but couldn’t manage the hit the 7120 level, instead they faltered at the 7112 level and we saw a move back down to below 7100. With the day closing below this level the bias is still bearish so shorting the rallies is still the best plan for the moment. We have initial resistance at the 7121 level so potential shorts here. The daily chart still has resistance higher up at 7225 that remains untested.
I am thinking that were see a bit of a slow and steady rise up towards the 7120 area this morning. The S&P has the potential for a drop off again from this 2875 – 2900 area and that may well drag the FTSE with it. Cable has bounced from its lows and is trying to push above the daily resistance at 12250, which it’s managing to do so far, so if we do see a recovery on that they will also push the FTSE 100 down.
Support for today is initially at the daily pivot at 7077, then we have the 7010 level still below that as the next major support. On the way down, there is also a key fib at 7025, with yesterdays low at 7044 as well. Below 7010 then a test of 6950 is distinctly possible, especially with the close below 7100 yesterday.
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