Good morning I hope you had a good weekend. The Chinese news out on Saturday was actually positive for once, so is this the start of a cycle of more positive news flow? The FT100 has now fallen for 7 days in a row with a bit of a “blow out” on Friday with a fall of 2.2% and an overnight low at 5900. Unfortunately the bull/bear trading around the 6100 level recently was won by the bears and with little support the market nosedived. I guess it’s not too late for a Christmas rally but from these levels it will have to be very strong to get anywhere near 6400-6500 by the end of December. All in all a very negative week with most weakness resulting from weak oil and commodity prices, with eyes resting on China and its economic slowdown. The big news this week is the Fed on Wednesday and what Yellen is going to say and do with interest rates. Will they raise or not? Market is pricing in a 25bps rise.
US & Asia Overnight from Bloomberg
Asian stocks joined a global selloff as concern about turmoil in the credit and commodities markets ahead of this week’s Federal Reserve meeting overshadowed a batch of better-than-expected Chinese economic data.
The MSCI Asia Pacific Index dropped 1.4 percent to 127.69 as of 9:05 a.m. in Tokyo, falling for a fifth day in its longest stretch of declines since the measure’s August slump. The Standard & Poor’s 500 Index sank 1.9 percent on Friday as crude traded below $36 a barrel and asset managers were routed after a high-yield mutual fund suspended redemptions. Traders see a 74 percent chance the Fed will increase rates on Dec. 16, futures show.
“With the worries around the Fed rate hike, the retail investors have decided to all of a sudden pull out,” said Nader Naeimi, the Sydney-based head of dynamic markets at AMP Capital Investors Ltd, referring to what caused the U.S. high-yield fund suspensions. “This negative sentiment in the bond market is spreading across other markets.”
Third Avenue Management last week said it will liquidate a $788.5 million credit mutual fund and delaying distribution of investor money so it can avoid unloading securities at fire-sale prices. Stone Lion Capital Partners suspended redemptions in its $400 million high-yield fund.
The credit-market turmoil comes on the cusp of one of the most anticipated weeks of the year for investors. Tightening policy would solidify the Fed’s divergence from other major central banks, with policy makers in Europe and Japan still emphasizing measures to support growth.
China Economy
Investors are also weighing economic reports from China over the weekend that showed fresh evidence of stabilization in the world’s second-largest economy. Bloomberg’s monthly China gross domestic product tracker picked up to a 6.85 percent estimated growth pace for November, the best reading since June, after reports Saturday on industrial production, retail sales and fixed-asset investment all exceeded forecasts.
Japan’s Topix index fell 2.2 percent after the yen gained 0.5 percent against the dollar on Friday. The Tankan index of sentiment among large manufacturers held at 12 in the fourth quarter, the Bank of Japan said. Economists had expected a decline to 11.
South Korea’s Kospi index lost 1.2 percent. Australia’s S&P/ASX 200 Index retreated 1.5 percent, while New Zealand’s S&P/NZX 50 Index slid 0.9 percent. Markets in China and Hong Kong have yet to start trading.
E-mini futures on the Standard & Poor’s 500 Index added 0.1 percent on Monday. [Bloomberg]
FTSE Outlook and Prediction
We have a pretty big week ahead with what could possibly be the first interest rate rise in the US for quite a while. The markets expecting a rate rise and has been pricing that in, though a lot of the weakness recently since the 6440 level has also come from the drop in commodity prices and China weakness. I am thinking though that Saturdays Chinese data marks the start of more positive news flow for the next couple of weeks as that often seems to be the pattern, few weeks where all news seems negative, few weeks where its more positive, then swap back. If thats the case then Fridays move down to 5900 might be the last flush to stop out any early bulls that thought they were buying into a Santa Rally. Its going to be a big ask to get 6500 though by the end of the year, but you never know – the first hurdle for the bulls is to get back above 6000 (there is resistance at 5985 first that needs to be broken). We have the 20 day Bianca at 5959 and the 10 day at 5902 as support today – I have put the 20day as support as I think that we will rise above this during the morning session to test the 5985 level. We have bounced off the 5900 low overnight so we may well see a bit of a charge from the bulls early this week. The key levels for today at 5985 for resistance and 5934 for support. If the support break then 5902 looks likely, if the resistance breaks then 6020, and 6075 are possible. Trading the breakouts will be worthwhile.