Good morning. On the final day of trading for the year the FT100 closed well below its peaks of 2015 after weak commodity prices weighed on markets in the final quarter. Brent crude oil prices stayed near 11-year lows and has shown little sign of a sustained recovery. The slowdown in China, the world’s second-biggest economy and a major consumer of commodities such as metals and oil has kept down commodity prices for the second half of the year.
Statistically the FTSE has underperformed its European rivals partly because commodity-related stocks account for a bigger part of the FT100 weigthing than European counterparts.
The 6250 area has been revisited on a number of occasions over the last 6 months and the FT100 closed near this level again at the end of the year.
As interest rates rise in the US it will make it difficult for markets to move higher in 2016, however the focus is more on China and its ability to stop a hard landing economically – reinforced by the Chinese rout today seeing a 7% drop and triggering the “circuit breakers”.
Things are also heating up a bit in the Middle East with Saudi Arabia (and then the US and UK etc on one side) and Iran on the other (with China and Russia behind them) after Saudi executed a prominent Shia cleric. Going to be an interesting January (still think dip then rise for the month).
US & Asia Overnight from Bloomberg
- Japan’s Topix index heads for biggest slide since October
- Chinese shares slump in Shanghai and Hong Kong trading
Asian stocks headed toward the biggest drop in three months as investors started the new year seeking safety amid renewed signs of a slowdown in China and escalating tensions in the Middle East.
The MSCI Asia Pacific Index slid 1.7 percent to 129.69 as of 12:17 p.m. in Tokyo. The yen surged, dragging shares in Tokyo lower. The Shanghai Composite slumped 3.9 percent as a private gauge of China’s factories unexpectedly fell. Saudi Arabia expelled the Islamic Republic’s diplomats from the country following an attack on its embassy in Tehran to protest the Saudis’ execution of a prominent Shiite cleric, marking the worst crisis in relations between the nations since the late 1980s.
“It’s a poor start of the year with a lot of bad news such as weak economic data from China and heightened tension in the Middle East,” Win Udomrachtavanich, Bangkok-based chief executive officer at One AssetManagement Ltd., which oversees about $3.5 billion, said by phone. “Most investors expect the tension between Iran and Saudi Arabia will be contained and limited. Still, it becomes the big risk for the financial markets today.”
Asian shares are trading for the first day of 2016 after posting back-to-back annual losses. Brent crude tumbled 35 percent last year and the Bloomberg Commodity Index slumped 25 percent amid an oil supply glut and as Chinese economic growth slowed, pressuring equity markets and corporate profits.
Regional Gauges
Hong Kong’s Hang Seng Index lost 2.5 percent on Monday and the Hang Seng China Enterprises Index of mainland firms trading in the former British colony slumped 2.8 percent. The China Caixin factory index came in at 48.2 in December, a report showed Monday, missing estimates for a reading of 48.9. On Jan. 1, China’s first official economic report of 2016 signaled manufacturing weakened for a fifth month, the longest such streak since 2009.
Japan’s Topix index fell more than 2 percent at the lunch break, after climbing 9.9 percent last year for a fourth straight annual gain. Australia’s S&P/ASX 200 Index was little changed after swinging between gains and losses. South Korea’s Kospi index fell 1.4 percent and Singapore’s Straits Times Index declined 1.6 percent. New Zealand’s equity market is closed for a holiday.
Futures on the Standard & Poor’s 500 Index slid 0.3 percent on Monday. U.S. stocks fell on the final trading day of 2015, with the benchmark measure losing 0.9 percent to cap a 0.7 percent annual drop. [Bloomberg]
FTSE Outlook and Prediction
Well 2016 has started with a flourish, with China down 7% today, Middle east tensions ratcheting up, oil and commodity prices still falling (with a rumour that diesel pump prices might dip below £1 a litre in the UK), interest rate rises started in the US (and the UK more than likely to follow later this year). So against that back drop we should see a rising FTSE as is usually the case. For today, we have resistance at the 6200 area initially on the 10min chart, and 6209 on the 30min so I feel if we get an early bounce to this level then a short here is wroth a go to target the bottom of the 10 day Raff. Usually the start of a new month and new year would be a bit bullish as new money flows into ISAs etc, however, with that China rout we may see a bit more of a subdued start. Above the 6200 area the next resistance level is 6278 on the 2 hour chart and another level that looks a good shorting spot. If the bulls were able to break this then we will be back on a path towards 6387 where we have the 200ema on the daily. Support wise for dips today we have S3 at 6159, though we have already broken S1 and S2 with the Chinese fall. Below that 6140 for the daily Raff and 10min channel area, then 6100. So fairly simple plan for today, thinking a long around the 6160 area and a short around the 6200 area, both of which we may well see by lunchtime.