Good morning. It was a “see-saw” day of trading yesterday on the FT100 with a strong open followed by a mid morning dip then a recovery into the close. This shows that views are quite polarised with bears selling into any rise and bulls buying and any dip producing a range of 6080-6145. Slightly annoying that it dipped below the stop on our long then bounced back but well done if you hopped back on. There will be a break soon of those main levels probably but whether it is to the upside or downside it is unclear but the momentum is more to the downside currently. The fallout from the China economic data and the governments intervention on liquidity points to possible problems ahead for the Chinese stock markets and economy. Sector wise commodities recovered some of yesterday’s falls and so appeared in the biggest risers list and a mixture of retail stocks were in the fallers list on domestic demand concerns.
US & Asia Overnight from Bloomberg
Asian stocks fell for a third day after China set a weaker fix for the yuan and Apple Inc. suppliers tumbled on a report it may cut production.
The MSCI Asia Pacific Index lost 0.9 percent to 127.24 as of 11:30 a.m. in Tokyo, with technology companies posting the largest declines. The new year has ushered in volatile trading as Chinese authorities intervened in a bid to stabilize domestic equities and reports showed weak manufacturing in the world’s two biggest economies. That was compounded Wednesday as the gap between China’s currency rate inside the country and that for the yuan traded offshore widened to a record, underscoring speculation the government faces pressure to devalue its currency to aid the economy.
“China is still a very underestimated risk,” Rainer Michael Preiss, a strategist at Taurus Wealth Advisors Ltd., told Bloomberg TV in Singapore. “The most elegant way out of a very complicated problem is to further devalue the currency and that would have a very negative impact on Asia in particular but also on other emerging markets. That’s not fully priced in.”
The Hang Seng Index declined 0.5 percent and the Hang Seng China Enterprises Index lost 0.9 percent. The Shanghai Composite Index gained 0.8 percent following a two-day 7.1 percent slide featuring a plunge on Monday that wiped out $590 billion of market value and triggered a trading halt.
“There’s a healthy dose of caution in our camp,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about $7.2 billion, adding that he remains overweight equities. “There’s still quite a long list of things to worry about and this volatility is going to be with us for some time. We’re still cautious on China and think it gets worse before it gets better. It doesn’t help sentiment when you’re seeing such big moves.”
The People’s Bank of China lowered the yuan reference rate by 0.22 percent, the most since Nov. 3, to 6.5314 per dollar.
Asian suppliers of Apple Inc. phones sank after Japan’s Nikkei Asian Review reported the world’s biggest company would reduce the output of its latest iPhones by about 30 percent in the first quarter of 2016. Sharp Corp. slumped 2.5 percent, Japan Display Inc. lost 2.9 percent and Alps Electric Co. sank 4.2 percent.
New World China Land Ltd. jumped 21 percent to its highest intraday level since November 2007 in Hong Kong after parent New World Development Ltd. offered to take the company private for HK$21.5 billion.
Regional Gauges
Japan’s Topix index declined 1.2 percent. Australia’s S&P/ASX 200 Index dropped 1.2 percent and New Zealand’s S&P/NZX 50 Index slid 0.4 percent. Singapore’s Straits Times Index fell 0.6 percent and Taiwan’s Taiex Index retreated 1.1 percent.
South Korea’s Kospi index declined 0.7 percent. A 5.1-magnitude earthquake detected 19 kilometers from North Korea’s Sungjibaegam nuclear test site was “artificial,” according to South Korea’s YTN news agency. Officials in Seoul are checking the details of the earthquake with the meteorological office, a government official said. The government is convening an emergency meeting, according to the official Yonhap news agency.
Futures on the S&P 500 fell 0.7 percent Wednesday. The U.S. equities gauge rose 0.2 percent Tuesday after slipping 1.5 percent in the previous session. [Bloomberg]
FTSE Outlook and Prediction
We have dropped off once again form the 6160 area overnight so today might quite possibly be the third test of the bottom of the 20 day Raff at 6090 and subsequent break. North Korea’s first successful test of a H bomb probably hasn’t helped the bulls case overnight, as well as Chinese markets still looking weak. The 30 min chart is showing a decent short at the 6121 area, and with the pivot at 6136 this area could be worth an initial short. The bullishness that appeared on the 2 hour chart yesterday with the bounce from 6080 to 6150 has disappeared and its looking bearish again on the higher timeframes, with a 10/25ema cross to bear brewing on the daily chart as well. If we do get an initial decline, I think there might be a bounce once again at the 6080 area, but it might be short lived and a decline to 6050 looks likely. There is a small divi today of 0.9 so bear that in mind for later as it will slightly effect open positions. If the bulls however do manage to break the 6136 daily pivot then 6167 looks the next area of resistance where we have the 200ema on the 30min and also the top of a declining channel on the 30min. Certainly been a volatile start to the year!