Good morning. The FT100 slipped for most of the day yesterday with broad based declines taking the markets to near three-week lows with weakness in the commodity sector triggered by continued concerns over the Chinese economy. Overnight negative news was that the People’s Bank of China set a weaker midpoint for the yuan (showing concern by the government over the Chines economy) and a survey showed that China’s services sector expanded at its slowest pace in 17 months in December An additonal global concern was the news that North Korea said it had successfully conducted a test of a nuclear device. All-in-all a negative day with the FT100 approaching the 6000 level before recovering late in the day. Was a bit early closing the 6121 short but such is life! Overnight more weakness from Chinese share sees the 7% circuit breakers tripping once again, so 5950 first thing this morning looks possible.
US & Asia Overnight from Bloomberg
Asian stocks tumbled, deepening a global rout, as a selloff in China triggered a trading halt in the nation’s equities for the second time this week amid growing concern over the economy.
The MSCI Asia Pacific Index fell 1.5 percent to 125.13 as of 11:07 a.m. in Tokyo. Turmoil has wiped more than $2 trillion from the value of global shares in 2016, the worst start to a year since 2000. Trading of Chinese stocks and index futures was halted by automatic circuit breakers after the CSI 300 Index plunged more than 7 percent following the People’s Bank of China’s weakening of the currency’s daily reference rate by the most since August.
“Markets are nervous — in essence they don’t trust the policymakers in China,” George Boubouras, chief investment officer at Contango Asset Management in Melbourne, said by phone. “Investors don’t like the concept of a fast-depreciating yuan, so there’s a lack of confidence. They’re exiting liquid markets in Hong Kong, Singapore and Australia as a proxy to lower their weightings in the region. We are positioned to be defensive.”
The offshore yuan traded in Hong Kong tumbled to a five-year low after China’s central bank reduced its daily reference rate. China’s increasing tolerance for a weaker yuan signaled authorities are struggling to shore up economic growth and rekindled concern last seen in August, when U.S. stocks entered their first correction in four years. The World Bank cut its global growth forecasts for this year and next as China’s slowdown prolongs a commodity slump and contractions endure in Brazil and Russia.
“It’s a bit of a fight of the officials versus the traders and where they think the currency should actually be,” Kerry Craig, global market strategist at JPMorgan Asset Management, told Bloomberg TV in Melbourne. “In the long run, this will lead to better transparency in the market, but in the near term it just adds to the volatility. We have to put up with that.”[Gap between onshore and offshore yuan widens to a record]
Gap between onshore and offshore yuan widens to a recordThe Hang Seng Index declined 2.8 percent and the Hang Seng China Enterprises Index retreated 4.1 percent to the lowest level since 2013. The CSI 300 of companies listed in Shanghai and Shenzhen fell as much as 7.2 percent before trading was suspended.
Under the mechanism which became effective Monday, a move of 5 percent in the CSI 300 triggers a 15-minute halt for stocks, options and index futures, while a move of 7 percent closes the market for the rest of the day.
Japan’s Topix index fell 1.6 percent as the yen climbed 0.4 percent to 118.06 per dollar. Australia’s S&P/ASX 200 Index lost 1.7 percent and New Zealand’s S&P/NZX 50 Index declined 0.7 percent. South Korea’s Kospi index slipped 1 percent and Singapore’s Straits Times Index dropped 1.8 percent, poised for the lowest close since 2012.
Futures on the Standard & Poor’s 500 Index retreated 1.1 percent after the underlying index fell 1.3 percent Wednesday to a three-month low and emerging-market shares dropped to the cheapest since 2009. Energy and raw-material companies led the selloff as Brent crude oil slumped below $35 a barrel to its lowest since 2004.
Minutes from the latest Federal Reserve policy meeting showed the committee decided unanimously three weeks ago to raise the benchmark federal funds rate by a quarter percentage point, ending an era of near-zero rates dating back to December 2008. The decision was a “close call” for some policy makers who worried about too-low inflation and received assurances that their colleagues would closely monitor its progress. [Bloomberg]
FTSE Outlook and Prediction
We’re doomed, we’re doomed! Or so you would think looking at the headlines. George Soros reckons we are on the cusp of another crisis (here), though there is some support at the 5945 area where we have the bottom of the 20 day Bianca and a fib pivot. I was also reading about this area being a key reversal area but that remains to be seen. With China tripping the circuit breakers again overnight after dropping 7% the bulls won’t have much momentum today. Maybe should have just kept that 6121 short from yesterday for a week!
The 10min chart has initial resistance at the 6002/6010 area so any early bounce might be worth a short at this level, though I don’t think we will be rising to the daily pivot at 6080 today. The markets are pretty jittery what with the volatile start and China dropping this week. If we do drop down to the 5945 area then I feel a little long here might be worth a go but its a bit risky as the downward momentum is quite strong at the moment. if this level breaks then I expect we will see 5890 in fairly short order. Its certainly tricky to call, bias is to the downside at the moment, but watch and see what 5945 does.