Good morning. The bulls failed to hold above 7000 yesterday, so I was just a bit too early with the short as it did in fact dip down to our long level in the end. Will we see a Bull Tuesday today? It looks like the S&P is on track for the 2140 level that I have mentioned a few times and we have R2 at 2142 today. Greece was the main news driver yet again yesterday, with Juncker stepping in and proposing a reduction in Troika-imposed budget targets and a release of emergency cash to prevent Greece going bankrupt in the summer. Greek leaders expressed optimism a deal to unlock bailout funds is within reach, in the face of continuing warnings by creditors that the country has yet to comply with the terms of its emergency loans. “We are very close” to an agreement, Finance Minister Yanis Varoufakis said in an interview late Monday with Greece’s Star TV Channel. “I’d say it is a matter of one week.”
US & Asia Overnight from Bloomberg
Chinese equities rose for the first time in three days, led by brokerages and energy companies, as investors sought companies that have underperformed the benchmark equity index amid a flood of new share sales.
A gauge of financial companies rallied 5.3 percent from its lowest level in six weeks as Huatai Securities Co. and Changjiang Securities Co. climbed by the 10 percent daily limit. PetroChina advanced 2.9 percent after tumbling almost 20 percent from its April high. The ChiNext index of smaller companies slid 0.4 percent from a record.
The Shanghai Composite Index rose 3 percent to 4,410.89 at 1:04 p.m., heading for its biggest gain since May 11 and the most among Asian benchmark stock measures. Twenty companies are scheduled to sell initial public offering shares from Tuesday to Thursday, which may freeze 2.8 trillion yuan ($451.1 billion).
“Investors that got allocations for new IPOs will hold, but those who didn’t get as much as they wanted will deploy excess funds to stocks that have underperformed,” said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co. in Shanghai, the second-largest listed Chinese brokerage. “If an investor doesn’t want to take too much risk, they will park their funds into large caps and try again when there are new IPOs.”
The CSI 300 climbed 3.4 percent. Hong Kong’s Hang Seng China Enterprises Index rose 2.3 percent, while the Hang Seng Index gained 0.6 percent.
The Shanghai Composite has rallied 119 percent over the past year, sending valuations to 16.8 times projected 12-month projected, compared with the five-year average of 10.2, according to data compiled by Bloomberg. Trading volumes were 38 percent below the 30-day average for this time of day.
Brokerages Lead
The CSI 300’s financial index headed for its biggest gain in four months following a four-day, 6.5 percent slump. Huatai Securities rebounded after sinking 16 percent from its April peak through last week. There were no decliners on the 48-member gauge of brokerages, banks and property companies.
“Banks are quite cheap and brokers have lagged behind the broader market and the rally seems to be driven by rotational buying,” said Wei Hou, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “We haven’t heard any major news in the market.”
The interest rate for overnight loans on the Shanghai Stock Exchange jumped the most in two months as the new share sales this week boosted demand for funds. The overnight repurchase rate traded on the Shanghai exchange jumped 379 basis points, or 3.79 percentage points, to 4.31 percent in Shanghai. That’s the biggest increase since March 12.
Mutual Funds
Margin traders increased holdings of shares purchased with borrowed money for a sixth day on Monday, with the outstanding balance of margin debt in Shanghai climbing to an all-time high of 1.28 trillion yuan.
Mutual funds managed a record 6.2 trillion yuan in assets at the end of April, the Securities Times reported Tuesday, citing data from the Asset Management Association of China.
Gauges of industrial, consumer and energy shares surged more than 2 percent on the CSI 300 index. PetroChina climbed the most since April 27. China Petroleum & Chemical Corp. advanced 3.1 percent from its lowest level in a month.
Chinese government directives last week concerning local government debt signal a potentially significant policy shift to prioritize growth over managing the country’s debt problem, according to Fitch Ratings Ltd. [Ref]
FTSE Outlook
I feel a bit bullish today and think we might see the top of the 20 day Bianca channel at 7028. The 10 day channel is a bit higher at 7067 and not sure we will get hat high. We have had a fairly positive Asian session, the ASX fought back up after an initial dip and the S&P is still looking for that 2140. Which all probably means we are about to drop big time! Todays pivot is 6980, pretty much where we are as I write this, so initial support that has held overnight. The Moving Averages I watch are positive and the 200ema on the 30min has support at 6973. That said, the bulls failed to hold onto their gains yesterday though the bears where all done with the drop to 6930. The Greek situation doesn’t do much for a nice stable trading environment, but it looks like a deal will get done and the can will be kicked a bit further. There is a slightly smaller divi tomorrow of 6.4.