Support 6271 6270 6234 6200 6130
Resistance 6294 6329 6346 6365 6399 6455
Good morning. Sunday’s talks between major producers ended in Doha without any agreement on limiting output, which has seen the FTSE 100 and oil both slide to be looking at a -65 open today. Gold hasn’t climbed that much as yet though, bout 10 up from Friday. Having stalled at around the 6375 area and the top of the daily channels on Friday it was only the news from Sunday’s meeting that was going to push us to 6400 or higher. Having now dipped back to the bottom of the 10 day Raff channel at 6270 its going to be an interesting start to the week!
US & Asia Overnight from Bloomberg
Crude tumbled the most in two months and currencies of oil-exporting nations slumped after talks between major producers ended in Doha without any agreement on limiting output. Asian stocks retreated from a four-month high as demand for haven assets boosted the yen and Treasuries.
West Texas Intermediate plunged as much as 6.8 percent, while Canada’s dollar and Malaysia’s ringgit posted the biggest losses among major currencies. Japan’s yen climbed toward a 17-month high after Group of 20 finance ministers signaled opposition to curbing its strength. The MSCI Asia Pacific Index of shares fell for the first time in nine days, led by energy stocks. An exchange-traded fund tracking Brazil’s stocks rallied as President Dilma Rousseff lost a key impeachment vote.
Global equities have moved largely in tandem with crude this year and both rebounded from multi-year lows over the past two months amid prospects oil-producing nations including Saudi Arabia and Russia would agree output caps in Doha to address a glut. Renewed instability in crude prices poses a risk to financial markets at a time when China’s economy shows signs of improvement and central banks are loosening monetary policies across much of Asia and Europe.
“There was an expectation baked into prices that you’d see a production freeze, and with no resolution, it adds to negative drivers for the oil price, commodities and commodity currencies,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about $7.2 billion. “We will probably see equity markets go off the boil as some of that recent strength in the materials and energy stocks unwinds. The reporting season remains in focus this week.”
Morgan Stanley, International Business Machines Corp. and Netflix Inc. are among companies reporting earnings on Monday. Singapore announced the steepest slide in its exports in more than three years for March, providing more evidence of a weakening economy after the city-state unexpectedly eased monetary policy last week. International Monetary Fund Managing Director Christine Lagarde said over the weekend that declines in commodity prices are likely to be long lasting.
Commodities
Crude was 4.7 percent lower at $38.48 a barrel as of 1:58 p.m. Tokyo time. It climbed above $42 a barrel in New York last week for the first time in 2016, having over the past two months rebounded from below $30 after Saudi Arabia, Russia, Qatar and Venezuela announced a preliminary agreement to freeze output. Discussions stumbled in Doha as Saudi Arabia and other Gulf nations refused to agree to any deal unless all OPEC members joined including Iran, which wasn’t present at the meeting, according to Russian Energy Minister Alexander Novak.
The failure of the Doha talks means “the oil price will reset lower and could even retest $30 over the next three months,” said James Purcell, a cross-asset strategist at UBS Group AG’s wealth-management business in Hong Kong. “Short term, that will dampen enthusiasm for risk assets, thus the moves in commodity currencies and yen are a knee-jerk reaction.”
Gold advanced 0.1 percent, having rallied 0.5 percent on Friday as U.S. reports showed manufacturing output unexpectedly declined and consumer confidence fell.
Currencies
The Canadian dollar, known as the loonie, sank 1 percent versus the greenback and the ringgit dropped 0.8 percent. Crude is Canada’s second-biggest export, while Malaysia is Asia’s only major net oil exporter. The Aussie lost 0.7 percent and the Norwegian krone weakened 0.6 percent. One-month forwards for the Russian ruble slid 1.7 percent.
The yen rose 0.7 percent. U.S. Treasury Secretary Jack Lew on Friday called foreign-exchange market moves “orderly” — a signal that the U.S. doesn’t view yen-selling intervention as warranted. The rebuff came after Japanese officials warned about one-sided foreign-exchange moves and speculators built record bets for the yen to extend this year’s 11 percent advance.
Stocks
The MSCI Asia Pacific Index fell 1.4 percent. Cnooc Ltd., China’s biggest offshore oil and gas explorer, dropped as much as 5.9 percent in Hong Kong. BHP Billiton Ltd., Australia’s largest oil and gas producer, lost 3.1 percent. Qantas Airways Ltd. tumbled as much as 14 percent — the most since December 2013 — after Australia’s largest carrier scaled back plans to expand capacity on domestic routes.
Japan’s Topix index sank 2.7 percent. Toyota Motor Corp. slumped 4.5 percent, the most in two months, after it said profit may be reduced by about 30 billion yen ($278 million) this quarter due to a series of earthquakes that struck southwestern Japan since Thursday and disrupted parts supplies. The quake was the country’s biggest natural disaster in five years and also halted some production at Sony Corp., which slid as much as 7.8 percent. Insurers Dai-Ichi Life Insurance Co. and Tokio Marine Holdings Inc. fell more than 5 percent.
The Next Funds Ibovespa Linked ETF surged 3.7 percent in Tokyo as opposition lawmakers in Brazil’s lower house of Congress reached the threshold of 342 votes needed to advance the motion to impeach Rousseff to the Senate.
“It will keep Brazilian assets supported but the market had already been expecting the impeachment for a while,” said Rajeev De Mello, who oversees about $10 billion as the head of Asian fixed income at Schroder Investment Management Ltd. in Singapore. “This is one positive for emerging markets coming from Latin America.”
Futures on the Standard & Poor’s 500 Index dropped 0.6 percent, while contracts on the U.K.’s FTSE 100 Index were down 1 percent.
Bonds
Sovereign bonds were in demand, with the yield on 10-year U.S. Treasuries falling three basis points to a one-week low of 1.73 percent. Australian notes due in a decade climbed for the first time in six days, pushing their yield down seven basis points to 2.48 percent. Japan’s 20-year yield declined to a record 0.28 percent.
The cost of insuring corporate and sovereign bonds rose across the Asia-Pacific region Monday. The Markit iTraxx Asia index of credit-default swaps climbed 3.5 basis points to 143.5 basis points, according to prices from Nomura Holdings Inc. The gauge is on track for its highest close in a week. [Bloomberg]
FTSE 100 Outlook and Prediction
If there was no agreement then oil and equities were always going to slide but it meant taking a gamble on the outcome on Friday so shorts have done well, bulls not so much! Global equities have largely followed crude oil over the past few months with the rebound. Renewed instability in crude prices poses a risk to financial markets at a time when China’s economy shows signs of improvement and central banks are loosening monetary policies across much of Asia and Europe. For today, we are looking at opening around the 6275 area which is S3 and also the bottom of the 10 day Raff. As such I think we will see an initial bounce, just to wrong foot any shorters who come in late (i.e. now) and also as shorts from Friday are banked. I can see us rising to 6304 where we have the 200ema on the 30min to start with, and if we were to break that then a rise to the daily pivot at 6345 is likely. However, it’s still short the rallies time for the moment, so both these levels look worth shorting from. A dip back down to the 6200 area is likely to see good support there, mainly as it was resistance for so long, though we do have the daily 200ema at 6234 as support first and an area that might be worth a long. So, areas I am watching today are 6234 and 6345 – quite a range over all, though there may be some action at 6304 as well, which is the pink arrow I have drawn on the chart below.