Support 6124 6113 6080 6061
Resistance 6143 6145 6168 6193 6194
Good morning. Slightly frustrating yesterday in that it followed the arrows but just missed the orders for the long at 6120 and the short at 6180 by a few points. After the initial rise and dip it was a fairly flat day hovering around the 6140 area for the remainder of the day. Overnight has been fairly flat as well. Asian equities traded lower across the board with Fed rate hike concerns and weaker energy prices a driving force for price action. We have a tiny dividend of 0.8 this week so not likely to see much buying at the bell tomorrow.
US & Asia Overnight from Bloomberg
- Futures show 54% chance U.S. interest rates to rise by July
- Gold slips for fifth day in a row as nickel rebounds
Asian equities sank toward a seven-week low and the dollar strengthened as speculation mounted that the Federal Reserve will raise interest rates as early as next month. Crude oil fell with gold.
All 10 industry groups declined on the MSCI Asia Pacific Index as the Bloomberg Dollar Spot Index climbed to a two-month high. Malaysia’s ringgit led losses among major currencies, while Australia’s dollar weakened as central bank comments fanned speculation borrowing costs will be lowered. U.S. crude traded near $48 a barrel as Canada worked to resume output following devastating wildfires. Gold dropped for the fifth day in a row, its longest losing streak since November.
Fed Funds futures are indicating for the first time since March a better-than-even chance that the U.S. central bank will raise interest rates by its July meeting. The speculation is driving a dollar rally that’s somewhat reminiscent of early January, when a global equities selloff wiped out about $7 trillion of market value in the wake of a December rate hike by the Fed. Unlike back then, oil and China’s yuan are showing signs of stability and James Gorman, chief executive officer of Morgan Stanley, said he expects financial markets to rebound in a return to a “more normal environment.”
“If the U.S. does raise borrowing costs, we could see some risk-avoiding moves like we had last December,” said Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo. “The market’s wary of this.”
U.S. data on Tuesday are forecast to show sales of new homes climbed for the first time in April. Germany has a report on investor confidence due, while France has a gauge of business sentiment coming. Euro-area finance ministers will meet to discuss how to conclude Greece’s bailout review, including debt-relief measures and contingency plans in case budget targets are missed. Hungary’s central bank is widely expected to cut interest rates, while Nigeria’s is seen boosting borrowing costs. Turkey also has a policy meeting scheduled.
Stocks
The MSCI Asia Pacific Index lost 0.6 percent as of 1:04 p.m. Tokyo time. Benchmark stock gauges fell across most of the region, led by declines in Shanghai and Tokyo.
Futures on the S&P 500 Index were little changed, after the benchmark declined 0.2 percent in the last session. Contracts on the U.K.’s FTSE 100 Index fell 0.3 percent.
“The market has good reason not to completely rule out a Fed hike over the next few months,” Mark Smith, a senior economist in Auckland at ANZ Bank New Zealand Ltd., said in a client note. “Even so, the Fed is likely to move carefully and slowly.”
Federal Reserve Bank of St. Louis President James Bullard said Monday he doesn’t expect a U.K. vote on European Union membership next month to influence the U.S. central bank’s decision. The San Francisco Fed’s John Williams said two to three rate increases this year are still “about right,” a sentiment echoed by the Fed’s Philadelphia president Patrick Harker. Fed Chair Janet Yellen is due to deliver remarks on Friday.
Currencies
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.1 percent. The Japanese yen weakened 0.2 percent after strengthening 0.8 percent on Monday.
The yuan was the most resilient of 31 major currencies, edging 0.04 percent higher versus the dollar and trimming this year’s loss to 0.9 percent. China’s central bank scrapped a market-based mechanism for managing the currency on Jan. 4, returning to a system whereby the exchange rate is based on what suits authorities the best, the Wall Street Journal reported, citing unidentified people close to the People’s Bank of China.
The Aussie dropped as much as 0.6 percent after Reserve Bank of Australia Governor Glenn Stevens said inflation is too low, reinforcing expectations of further interest-rate cuts. The monetary authority lowered its benchmark rate by a quarter of a percentage point to a record-low 1.75 percent at the last review on May 3.
The ringgit slid 0.8 percent as the drop in oil prices dimmed prospects for Malaysia, Asia’s only major net exporter of crude. The Kiwi weakened 0.7 percent.
Commodities
West Texas Intermediate crude fell 0.4 percent to $47.89 a barrel before weekly U.S. government data forecast to show crude stockpiles declined amid a glut. All of the Canadian oil-sands facilities that workers evacuated as a wildfire spread are being allowed to prepare for restart as cool, humid weather has helped contain the inferno.
Gold retreated 0.3 percent, after sinking more than 2 percent over the last four days. The prospect of a U.S. rate hike diminishes the precious metal’s appeal as a store of value.
Nickel added 1 percent on the London Metal Exchange, after sliding 2 percent in the last session. Copper snapped a four-day losing streak.
Bonds
Australian government debt recovered from earlier losses, with 10-year yields little changed at 2.29 percent after rising as high as 2.32 percent. Similar-maturity U.S. Treasuries yielded 1.83 percent, similar to Monday’s closing level.
Deutsche Bank AG had its credit rating cut by Moody’s Investors Service Monday, with the agency claiming the German lender faced mounting challenges in executing a turnaround plan. The bank’s senior unsecured debt rating was lowered to Baa2 from Baa1, leaving it two levels above junk. [Bloomberg]
FTSE 100 Outlook and Prediction
Today we have the pivot at 6145, and also the top of a declining channel on the 10 minute there. We also have the 30 min coral line which has turned red (signalling a downtrend) so with 3 resistance levels there and a fairly flat session yesterday afternoon this could well be worth a short at this area. Above this we have the top of both the Bianca channels at 6193 so if the bulls were to pull it out the bag today this area is likely to cause a stall, and should see some bears appear. Whilst we are below 6150 then I am thinking that we will likely see 6080 or lower again. The 2 hour chart Hull moving averages are closing their gap and if we are bearish today are likely to cross to the downside. We tested the 25ema on the daily chart yesterday at 6173 and dropped off from there, so the trend is still bearish for the moment. The main support on the 2hour chart is 6120 still so the bears will be keen to break that first thing.