Good morning. The markets looked set for a positive start to 2016 but this was cut short by weak China economic data overnight. There was an unexpected acceleration in the decline of China’s factory activity in December which sent the world markets southwards. China’s benchmark share index fell 7% on the news which prompted the stock exchange to halt trading for the rest of the day, so this aggravated the sense of unease in other markets when they opened. The sector to fall the most was commodities (as China is seen as the major driver for commodity prices) however oils fell less so as Middle East tensions put a floor on oil prices. After a failed rally around 3pm (UK time) the FT100 fell again nearer the end of trading and closed down 148.89 points (2.39%) for the day. However, China moved to support its sinking stock market as state-controlled funds bought equities and the securities regulator signaled a selling ban on major investors will remain beyond this week’s expiration date, according to people familiar with the matter. If this sets the tone for the year its going to be a bumpy one, but with the potential for some decent trades if you run the winners.
US & Asia Overnight from Bloomberg
Asian stocks stabilized after the worst start to the year since 1988 as China’s central bank added funds to the financial system and U.S. equities staged a late rally.
The MSCI Asia Pacific Index was little changed at 128.93 as of 11:05 a.m. in Tokyo, swinging between losses of 0.4 percent and gains of as much as 0.2 percent. China’s regulator moved to reassure investors after Monday’s plunge engaged the nation’s new market circuit breakers on their first day.
The People’s Bank of China conducted the biggest reverse-repurchase operations since September, adding 130 billion yuan ($20 billion) of funds to the financial system after money-market rates climbed to an eight-month high. The circuit breaker plays an important role in stabilizing the market, and the government will work to improve the system, China Securities Regulatory Commission spokesman Deng Ge said in a statement Tuesday.
“There’s more easing ahead from the Chinese,” Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors Ltd., which oversees about $115 billion, said by phone. “I expect them to cut interest rates and/or the reserve-requirement ratio again. We’ve been reminded that volatility in financial markets remains high and that the global economy still needs monetary policy support.”
Asian equities are reeling from the first back-to-back annual losses in a decade amid concern weakening Chinese growth and tighter U.S. monetary policy will choke off an earnings expansion. Regulators halted China’s stock market Monday following a 7 percent slide.
Global equities had their worst inaugural session in at least three decades on Monday. The MSCI Asia Pacific index slumped 2.3 percent, the most in three months, after the first economic reports in 2016 suggested concern over the world’s second-largest economy won’t easily dissipate. Evidence of slowing manufacturing in China triggered the selloff that halted trading in Shanghai.
Losses spread as data showed manufacturing in the U.S. contracted in December at the fastest pace since 2009. U.S. markets recouped some of their losses in the last few hours of trading with the Dow Jones Industrial Average almost halving its decline.
Most markets halted their plunge on Tuesday. Hong Kong’s Hang Seng Index and the Hang Seng China Enterprises Index of mainland shares traded in the city were little changed. The Shanghai Composite added 0.5 percent. Japan’s Topix index rose 0.3 percent and South Korea’s Kospi index increased 0.7 percent. Singapore’s Straits Times Index was little changed. Australia’s S&P/ASX 200 Index lost 1 percent and New Zealand’s S&P/NZX 50 Index declined 0.8 percent.
“Investors need to be more cautious,” said Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney, which manages about $21 billion. “Growth remains a concern. How the year plays out is unclear, but the only surety is that volatility will increase.”
Futures on the S&P 500 added 0.2 percent. The underlying index closed 1.5 percent lower on Monday after dropping as much as 2.7 percent during the day. [Bloomberg]
FTSE Outlook and Prediction
We tested (and dipped slightly below) the 6080 20 day Raff support yesterday but bounced back from that overnight to reach 6160, mainly helped by the China stimulus. As such, that might settle things a bit for the moment but its been a pretty wild start to 2016. For today we have the pivot area at 6156 for initial resistance, and the 10min chart suggesting an initial dip. If we do then the 30min chart is suggesting that 6106 are is a good spot to go long, along with the bottom of the 10 day Bianca channel here, to target a rise towards the 6188 area. This is resistance on the 2 hour chart, and the bulls will be keen (and need to) break this area to push any higher. Just prior to 6106 there is some support on the 10min chart at 6117, so we may see the buyers start to come in around this area. If 6106 breaks then we are likely to test the bottom of the Raff again at 6086, and possibly the 10 day at 6043. It’s jittery thats for sure, so keep the stops tight, run the winners and cut the losers ASAP.