Good morning. I hope you had a good weekend. That was a pretty grotty week for the FTSE last week (and the rest of the world too) in terms of equities, and oil continued its slide as well. I still think oil will level off around $55. The S&P has dropped to 2000 now – much further than expected. With regards to the FTSE the election next year is likely to be fought on the economy, so I wouldn’t be surprised if we start climbing just as fast. Whether thats this year with the Santa Rally (no sign of that yet!) or starting in February time remains to be seen. That said, for the first time in a while the daily RSI has turned up to 20, having hit 17 on Friday (using RSI(10)).
Asia Overnight from Bloomberg
Asian stocks retreated as oil’s plunge to five-year lows spurred concern that the global economic outlook is worsening, pushing credit risk higher and driving Japanese bond yields to a 20-month low. Indonesia’s rupiah tumbled.
The MSCI Asia Pacific Index retreated 1.1 percent by 3:09 p.m. in Tokyo, as a gauge of emerging-market stocks slid to a 10-month low. U.S. oil traded at $58.37 a barrel, having lost about 45 percent since a June 20 high. The rupiah headed toward its lowest level versus the dollar since the Asian financial crisis and India’s rupee slid 0.6 percent. U.S. equity-index futures climbed after the Dow Jones Industrial Average (INDU)’s biggest weekly loss since 2011. Gold fell 0.5 percent.
Benchmark oil prices have plunged as increasing U.S. production coincides with signs of slowing economic growth from Europe to China, and a recession in Japan. The United Arab Emirates said OPEC will resist output cuts even if prices slump as low as $40. Australia’s treasurer said the government deficit will widen on lower commodity prices, while investors await a U.S. Federal Reserve meeting this week for signs as to the timing of potential interest-rate increases.
“The oil price collapse is symptomatic of a lack of global demand,” said Stewart Richardson, who helps oversee $180 million at RMG Wealth Management LLP in London. “Developed equity markets have become more jittery. We don’t see central banks as being in a position to appease markets at the moment.”
Output Unchanged
The Organization of Petroleum Exporting Countries won’t immediately change its Nov. 27 decision to keep the group’s collective output target unchanged at 30 million barrels a day, UAE energy minister Suhail Al-Mazrouei said. The market will stabilize itself without OPEC targeting a price, he said.
Brent crude, a pricing benchmark for more than half of the world’s oil, climbed 1.2 percent today. The contract slumped 2.9 percent to $61.85 a barrel in London on Dec. 12, for the lowest close since July 2009. Brent has tumbled 20 percent since Nov. 26, the day before OPEC decided to maintain production. WTI dropped 3.6 percent to $57.81 in New York Dec. 12, the least since May 2009.
Nine of 10 industry groups on the Asia-Pacific stock gauge dropped today, led by consumer discretionary companies. A gauge of energy companies is rising for the first time in seven days.
The MSCI Emerging Markets Index retreated 0.6 percent, a seventh straight drop, and is heading for its lowest close since February. Investors withdrew more than $2.5 billion from U.S. exchange-traded funds that buy emerging-market stocks and bonds last week, the biggest outflow since January. All 24 of the emerging markets tracked by ETFs saw withdrawals, the data show.
Hong Kong’s Hang Seng Index slid 1.2 percent and a gauge of Chinese companies listed in the city slumped 1 percent. The Shanghai Composite Index fell 0.5 percent.
U.S. Futures
In the U.S. on Dec. 12, the Standard & Poor’s 500 Index lost 1.6 percent to 2,002.33, extending losses in the final hour to cap a weekly drop of 3.5 percent. The Dow sank 315.51 points, or 1.8 percent, to 17,280.83, sliding 3.8 percent for the week, its biggest decline since November 2011.
S&P 500 futures added 0.3 percent today, while those on the Dow measure climbed 0.3 percent. Nasdaq 100 index contracts advanced 0.3 percent.
Tokyo’s Topix index was 1.5 percent lower and the Nikkei 225 Stock Average declined 1.6 percent, heading for its lowest finish since Nov. 17, as the yen fluctuated. Prime Minister Shinzo Abe’s ruling party won more than two-thirds of the seats in a lower house election amid the lowest turnout since World War II.
Sovereign Bonds
The yield on Japanese 10-year bonds fell two basis points to 0.375 percent, the lowest level since April 2013. The rate on similar maturity U.S. government notes climbed two basis points after haven demand drove the yield on the November 2024 bond lower by eight basis points to 2.08 percent on Dec. 12.
“A drop in oil stokes concern about growth and credit risk, and markets can’t ignore that,” Shoji Hirakawa, chief equity strategist at Okasan Securities Co. in Tokyo, said by phone. “Abe’s government will hold power for a longer period, which is positive for Abenomics. But there’s also concern he may shift his attention to national security.”
The cost of insuring corporate and sovereign bonds in the Asia-Pacific region against non-payment rose today, traders of credit-default swaps said. The Markit iTraxx Asia index of credit-default prices jumped four basis points on thin trading volumes to 112 basis points as of 8:50 a.m. in Hong Kong, according to Royal Bank of Scotland Plc prices. The gauge is set for its highest close since Oct. 30.
Australia Deficit
Australia’s currency erased losses after touching 82.04 U.S. cents, the lowest level since June 2010. The government’s underlying cash deficit will deteriorate to A$40.4 billion ($33.2 billion) in the fiscal year ending June 30, 2015 from a May estimate of A$29.8 billion, Treasurer Joe Hockey said in the mid-year economic and fiscal outlook today. He said a slump in iron-ore prices and weaker-than-expected wage growth dragged tax receipts lower.
The euro slid 0.2 percent to $1.2442 and Norway’s krone was 0.3 percent weaker. India’s rupee weakened to 62.6650. New Zealand’s currency retreated 0.3 percent to 77.53 U.S. cents, a second straight decline. The Bloomberg Dollar Spot Index was little changed after dropping 0.2 percent Dec. 12.
Indonesia’s rupiah tumbled 1.9 percent to 12,691 per dollar, the biggest drop since Aug. 1 and the weakest level on a closing basis since August 1998. The currency is suffering amid speculation local companies are buying dollars before year-end and as foreign funds pull money from the country.
Gold for immediate delivery traded at $1,217.06 per ounce, while silver slid 1 percent to $16.8628. Palladium and platinum retreated at least 0.3 percent.
FTSE Outlook
Recently Mondays have been pretty bearish, and after last week you’d go with today being the sam. However, the daily RSI has turned up a little, and we have support at 6220 initially today. If that were to break then we are looking at a drop to 6100. We are at the bottom of the 10 day Bianca channel as I write this at 6248 so I expect an initial rise at least, though maybe only as far as the first resistance level at 6263. If it can break above this then the weakness is probably ending, and we might be on for a rise to the daily pivot at 6353, where we also have the bottom of the 20 day Bianca channel – which following this breakout would initially act as resistance. The bulls will really be wanting to get the price above 6400 ASAP this week, to try and end this bearish run. If they can hold 6220 today then that looks possible, otherwise, get short again.
Pretty wide support and resistance levels today, the key ones to watch being 6220 and 6263. A break of either of these and the trend is likely to run so go short below 6212 and long above 6270. 80% are now long on IG so some stops still to take out probably……