12th August 2019
On Friday, the pound sunk to its lowest level against the dollar in 31 months and hit a two-month nadir against the euro after new data showed the UK’s economy unexpectedly shrank in the second quarter.
Britain’s GDP contracted by 0.2pc in the three months to June as construction work froze up, manufacturing stalled and businesses burned through their stockpiles. Car plants had brought forward their annual shutdown to April, also as part of their Brexit plans, further hitting output in manufacturing. It is the joint-worst fall since the financial crisis in 2009, and the first drop in seven years.
The contraction marks a sharp reversal from the strong growth of 0.5pc in the first three months of the year. That result had been boosted by stockpiling of goods and materials by businesses on both sides of the Channel ahead of the then-planned Brexit deadline of 29th March.
Friday’s figures have raised the spectre of recession — usually defined as two consecutive periods of negative growth — though some analysts think the impending Brexit deadline on 31st October will offer a bump similar to the one seen in the run-up to March.
The FTSE 100 closed down 0.44pc, shedding 32.5 points to finish at 7,253.85.
Chinese policy makers are holding back from rolling out the big guns of monetary stimulus, keeping options in reserve as the trade standoff with the U.S. risks morphing into a global currency war. The People’s Bank of China late Friday called for a “rational” view on current headwinds, signaling that the targeted approach to shoring up output would continue. The U.S.’s labeling of China as a currency manipulator “signifies the trade war is evolving into a financial war and a currency war,” and policy makers must prepare for long-term conflicts, Chen Yuan, former deputy governor of the PBOC, said at a China Finance 40 meeting in Yichun, Heilongjiang. Former PBOC Governor Zhou Xiaochuan called for efforts to improve the yuan’s global role to deal with the challenges of a dollar-denominated financial system.
Stocks in Asia kicked off the week on a cautious note after U.S. equities retreated Friday amid trade-war concerns. Futures pointed to a lower start in Hong Kong and Australia, though trading may be limited in much of the Asia-Pacific region with markets shut on Monday in Japan, Singapore, India, Malaysia, Philippines and Thailand. The yen edged higher, extending moves seen at the end of last week as President Donald Trump said that planned trade talks with China could be called off. On the data docket this week, the U.S. consumer price index, out Tuesday, probably picked up to a 1.7% annual pace in July, according to economist estimates. Wednesday brings data on China retail sales, industrial production and the jobless rate, expected to confirm an ongoing slowdown in the world’s second-largest economy. Thursday sees the release of U.S. jobless claims, industrial production and retail sales data. Australia jobs figures are due Thursday.
FTSE 100 Trading Signals, Forecast and Prediction
The bulls managed to defend the 7240 level on Friday but failed to break above the 7300 level which is now short term resistance. However, I have the 7322 to 7332 area showing as decent resistance and am thinking that taking a short here is worth a go. The S&P has pushed on well and is holding above the 2900 level, though the daily chart has resistance at 2940, and this level will be key for the bulls to break. That strength may well roll through into the FTSE.
On the FTSE 100 daily chart I have the moving average resistance at 7407 and slowly declining, so am expecting a rise to test this area within the next few sessions and then probably a pull back from there. The fall from 7730 has been quite swift, though the recovery from 7062 is holding on for the moment and its a good sign that the bulls defended the 7240 level on Friday.
For support today we have the 200ema on the 30min at 7271. The most bullish looking chart is the 2 hour and is showing decent support at 7211 and 7175 for the moment. The ASX200 had a small dip and then a rise and looking at our 30m chart it looks like we may well do something similar. As mentioned, the bulls will be keen to break 7332, as that leads to the 7405 resistance level and whilst we probably won’t get that high today (but never say never) it looks to be worth a short.
In UK politics MPs are reportedly drawing up plans to force PM Johnson to request a Brexit extension, while Labour MPs have been told to cancel travel plans for next month as the party leader prepares to table a no-confidence motion.
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