Good morning. It was a long brutal day on the markets yesterday with a number of conditions pushing the FT100 downwards throughout the day, closing near its lows at 6178. A strong dollar and concerns about oversupply sent copper to a six-year low, while an OPEC report that a market surplus in oil would persist sent the price of Brent lower. US data reinforced concerns of a US interest rate rise in December while a profits warning from Rolls Royce sent them and other UK aerospace shares in a spin downwards. Only a cost cutting exercise by BAE prevented them from joining the group of worst performers. All-in-all a negative day with only the ‘shorters’ coming out of it with a profit. The worst sectors being commodities, oils and aerospace. Also frustrating was that the 6303 short oder missed by 1 measly point… drives you mad sometimes! Maybe the sell off should have been today, what with it being Friday the 13th and all!
US & Asia Overnight from Bloomberg
Asian stocks followed U.S. shares lower, with the regional benchmark index heading for a third weekly decline, as energy and material shares slid amid a renewed selloff in commodities.
The MSCI Asia Pacific Index fell 0.6 percent to 132.81 as of 9:01 a.m. in Tokyo, poised for a 0.7 percent retreat this week. The Standard & Poor’s 500 Index slipped 1.4 percent on Thursday, the most in six weeks, as a rout in commodities pressured oil and raw-materials companies while investors braced for the first rise in interest rates since 2006. Federal Reserve officials stressed that policy should be tightened only gradually, with New York Fed President William C. Dudley saying the conditions for liftoff “could soon be satisfied.”
“Central bank policy continues to be a major trading theme in the market and the other one is the pressure on commodity prices,” Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney, which manages about $21 billion. “Most central banks will be easing and the Fed will be hiking very very cautiously. That has investors nervous about equity prices and potential earnings growth and so we’re seeing quite a pickup in volatility.”
U.S. crude oil maintained its drop below $42 a barrel and copper futures extended declines after touching a six-year low, spurring a seventh day of weakness in Bloomberg’s commodity gauge.
The odds the Federal Reserve will raise rates at its December meeting have risen to 66 percent. Fed Bank of St. Louis President James Bullard said rates should be raised from near zero because emergency policies are not needed with the labor market and inflation near the central bank’s goals.
Regional Gauges
Japan’s Topix index sank 1 percent as the yen held gains against the dollar. South Korea’s Kospi index dropped 0.9 percent. New Zealand’s S&P NZX 50 Index slipped 0.5 percent. Australia’s S&P/ASX 200 Index fell 2.2 percent, heading for its biggest loss since September. Markets in China and Hong Kong have yet to start trading.
Futures on the FTSE China A50 Index slid 1.2 percent in most recent trading, while contracts on the Hang Seng China Enterprises Index of mainland shares in Hong Kong dropped 0.9 percent. The Shanghai Composite Index lost 0.5 percent on Thursday, as technology companies slumped on concern recent gains were overdone.
E-mini futures on the S&P 500 index added 0.2 percent on Friday. [Bloomberg]
FTSE Outlook
The current commodity slump obviously weighs heavily on the FTSE being quite miner heavy. Despite this the ASX200 (Australia) which we often follow has so far not been too bad for Friday, actually rising from its lows from the open, though its dropping again now at the close. So the FTSE might well do the same today (inverted V). There is a bit of support at the 6144 area on the 10min chart so if we do get an early bounce from this area then a rise to the daily pivot at 6197 looks possible. I can however see the bears wanting to build on yesterdays weakness so further declines are highly likely. I have drawn an orange arrow for a possible extension rise past the pivot to the top of the 30min channel at the 6230 area, though I don’t think it will get this high today. 6218 has resistance also on the 2 hour chart. However, below 6100 could be a reversal area so if we see this level then start thinking about a change of stance to bullish, though obviously the charts won’t confirm that its bouncing there till it does. Could be worth a brave long at 6097 if you fancy it!