Good morning. As expected the 8 day rally came to an end yesterday and with the US closed for Columbus day the movements were fairly small. Unfortunately the early morning spike to 6412 stopped just short of the short order at 6414 before dropping to a session low at 6350, before some strength came back. Still feels weak to me so shorting the rallies is still the preferred option, with a drop down towards 6300 likely. Dow managed t reach the 17150 level I have mentioned a few times and has dropped back from there, so could be at the start of a run down now. It was a bit ironic that the best trade yesterday was the 2019 S&P short, and that was the market that was closed!
US & Asia Overnight from Bloomberg
Asian stocks dropped, with the regional benchmark index retreating from a seven-week high, as Japanese shares slipped after a holiday and investors awaited China’s trade data.
The MSCI Asia Pacific Index fell 0.3 percent to 133.76 as of 9:00 a.m. in Tokyo after closing Monday at the highest since Aug. 20. The Standard & Poor’s 500 Index rose for a fourth day on Monday as speculation global central bankers will maintain stimulus, at least through the end of the year, underpins a recovery in equities. Data due Tuesday is expected to show ongoing contraction in Chinese exports and imports, potentially reigniting the concerns that fueled last quarter’s volatility or stoking bets on further easing.
“The market is trying to digest the recent rally,” Shane Oliver, Sydney-based global strategist at AMP Capital Investors Ltd., which manages $112 billion, said on Bloomberg Television. “The broad picture is still one of ongoing recovery for share markets. We certainly will see more stimulus out of China.”
Japan’s Topix index lost 0.3 percent. South Korea’s Kospi index was little changed. New Zealand’s S&P/NZX 50 Index added 0.3 percent. Australia’s S&P/ASX 200 Index slipped 0.2 percent. Markets in China and Hong Kong have yet to start trading.
Shanghai Rally
The Shanghai Composite Index advanced 3.3 percent to its highest close since Aug. 21 on Monday amid speculation China’s government will take more steps to bolster economic growth. The People’s Bank of China announced over the weekend it will expand a relending trial to nine more cities and provinces, while Premier Li Keqiang said the government will increase fiscal support for shantytown redevelopment. Chinese policy makers are slated to meet to lay out a five-year economic plan Oct. 26-29, Xinhua reported.
Futures on the FTSE China A50 Index fell 0.6 percent in most recent trading, while contracts on the Hang Seng China Enterprises Index lost 0.1 percent.
E-mini futures on the S&P 500 were little changed after the underlying gauge added 0.1 percent on Monday.
Investors are listening for further hints on the Federal Reserve’s policy intentions. Fed Bank of Atlanta President Dennis Lockhart, speaking Monday to a group of economists in Orlando, Florida, repeated his view that he backs the first rate increase since 2006 by the end of the year. That followed weekend comments by Fed Vice Chairman Stanley Fischer backing the case for an increase by year-end. Charles Evans of the Chicago Fed reiterated his view that a later liftoff may be the best policy as inflation struggles to gain traction.
Traders are now pricing in a chance of about 39 percent that rates will be raised by December. [Bloomberg]
FTSE Outlook
I am still in short the rallies mode and looking to go short on a rise to the 6380 area. It was a shame that the 6414 order just missed yesterday (what is it with orders just missing at the moment!?) though the S&P from 2019 worked well. I expect us to get a drop down towards the 6320 area where we have the bottom of the 30min channel, and possibly a little bit below that around the 6290 area. The Dow has dropped off the 17150 level since that little spike up last night. The FTSE is just below the 10 day Bianca channel (bottom of that is at 6382) and with a bearish 2 hour chart the bottom of the 10 day Raff at 6320 would be a good level for a run down today. We have a pretty decent declining 30minute channel and if we do get an initial rise its worth shorting that.