Good morning. There was some buying on the back of the FED announcement yesterday morning however most traders were already positioned at lower entry levels and so the FT100 quickly fell back having spiked up to 6150. The profit taking has been limited and so this shows the market is relatively strong in the run up to Christmas. World economy is still weak and this is shown by continued low oil and commodity prices and so the buying may be short lived.
The FED decision is more of a longer term signal suggesting that they think the US economy is strong enough to take an interest rate rise and so for the next year is a positive. Until commodity prices show signs of recovery then it will be difficult for markets to move up, especially the FT100 as it is weighted so highly in these sectors.
Financials do better in a higher interest rate environment and so yesterday the banks were some of the biggest gainers with oils and commodity sectors lagging near the bottom.
US & Asia Overnight from Bloomberg
Asian stocks fell, after a brief rebound from earlier losses, as a plan by the Bank of Japan to establish a new program to purchase exchange-traded funds disappointed investors.
The MSCI Asia Pacific Index slipped 0.7 percent to 129.57 as of 2:50 p.m. in Hong Kong, after jumping as much as 0.6 percent after the BOJ announcement. The BOJ said it will spend an additional 300 billion yen ($2.5 billion) for ETF purchases on top of the 3 trillion yen the bank already spends each year. Japan’s Topix index jumped as much as 2 percent, only to drop as investors took a closer look at the central bank’s plan.
“This is unexpected, but compared to the previous so-called QQE, the size is considerably different,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd. “At 300 billion yen, it’s on the scale of margin of error. The impact to the stock market will not be big.”
At 300 billion yen, it’s just a 10th of the size of the bank’s current ETF efforts. Not only that, it’s intended to offset the market impact as the central bank resumes selling stocks it purchased from financial institutions from April. The BOJ also said it would extend the average maturity of holdings of Japanese government bonds to 7-12 years, and increase the amount of individual Japanese real estate investment trusts it can own.
Weekly Gain
Asia’s benchmark index pared this week’s gain to less than 0.1 percent after jumping 3 percent over the past two days. The Standard & Poor’s 500 Index ended a three-day advance as a stronger dollar in the wake of the Federal Reserve’s interest-rate increase this week weighed on commodity shares, with crude tumbling below $35 a barrel.
The U.S. rate increase solidifies the Fed’s divergence from other major central banks, with policy makers in Europe and Japan still emphasizing measures to support growth. Following its two-day policy meeting, the BOJ kept its main target for monetary stimulus unchanged, indicating confidence in the economy after data from capital spending to business confidence and unemployment exceeded expectations. It will start the new ETF program in April.
Taiwan’s Taiex index slipped 0.8 percent. Singapore’s Straits Times Index declined 0.4 percent. South Korea’s Kospi was little changed and Australia’s S&P/ASX 200 Index added 0.1 percent. New Zealand’s S&P/NZX 50 Index increased 0.3 percent. Hong Kong’s Hang Seng Index and the Shanghai Composite Index were little changed.
E-mini futures on the S&P 500 Index dropped 0.3 percent. The underlying measure fell 1.5 percent on Thursday, halting its longest winning streak since October, as investors moved past the Fed’s first interest-rate increase in almost a decade and returned their focus on the commodities rout and prospects for global growth. Oil closed in New York at the lowest level in almost seven years after U.S. crude inventories surged. [Bloomberg]
FTSE Outlook and Prediction
Slightly frustrating day yesterday for the FTSE for me as I shorted just a bit too early at 6140, stopped out at 6160 only to watch it then pretty much follow my arrows and drop to 6100, bounce to 6130 then drop back below 6100 overnight. At least the gold short at 1069 netted a few points. For today we have the pivot at 6103 as initial resistance with a 30min PRT line and the coral just above that. I think a short around here is worth going for, despite the fact that we have already tested the pivot overnight and dropped back from it. Support is at 6073 initially this morning, but i am feeling a bit more bearish as we are nudging the top of the daily Raff/Bianca channels since the Fed news, and also the 2 hour chart has just turned bearish. I think we will get a dip down to the 6030 area (I don’t think the bears are going to break 6000 this side of Christmas) before more upside next week as we possibly get the Santa Rally kicking in. I’d rather trade of the technicals than pin my hopes on that rally though at the moment.