Good morning. Well its a pretty bearish open, with the FTSE hitting a low of 6196 overnight though has bounced back a little bit. The sell off has continued for all the reasons you have read about – China, slowing global growth, kicking off a bit between North and South Korea and so on. The FTSE has now entered correction territory, closing 10% down on its most recent high at 7100. Today is also option expiry day (OpEx) so expect some sharpish moves around 10:10 this morning as the various futures contracts roll over. The Greek PM has also resigned yesterday, after winning on a wave of no to austerity, thats not really tenable anymore. As a slight aside, when its all doom and gloom and the news headlines are reporting how bad it is, usually means there will be a bounce coming.
US & Asia Overnight from Bloomberg
Asian stocks fell, with the regional benchmark index heading for its biggest weekly drop in three years, after U.S. shares succumbed to a snowballing selloff spurred by fears about the global economy.
The MSCI Asia-Pacific Index slipped 1.9 percent to 131.65 as of 10:02 a.m. in Hong Kong, heading for a 4.8 percent drop this week. The Standard & Poor’s 500 Index tumbled the most in 18 months on Thursday, while a gauge of global equities dropped to its lowest level since January. As the Federal Reserve inches closer toward raising U.S. interest rates for the first time since 2006, anxiety over developing markets is increasing, with China’s surprise yuan devaluation last week triggering similar moves elsewhere in Asia.
“The overnight weakness in global markets is making people nervous,” Angus Gluskie, managing director at White Funds Management Pty in Sydney, who oversees $550 million, said by phone. “The biggest concern among investors right now is the market volatility in China that shows investors are increasingly concerned about the health of the Chinese economy and how that might impact the rest of the world.”
A report today showed a private gauge of Chinese manufacturingunexpectedly fell to the lowest level in more than six years, suggesting the world’s second-largest economy will need further policy support to stem a deepening slowdown. Concern that demand is weakening has driven a commodities rout that’s erased $2 trillion from the value of mining and oil companies since the middle of last year.
Regional Gauges
China’s Shanghai Composite Index slipped 1.1 percent, with the gauge heading the its first weekly drop in three weeks. The Hang Seng China Enterprises Index of mainland companies traded in Hong Kong slumped 2.2 percent.
Hong Kong’s Hang Seng Index slipped 1.8 percent, extending losses from its April high to 21 percent, as declines in mainland equities and the devaluation of the yuan erode support for the city’s shares. The benchmark gauge will be in what traders consider a bear market if it closes at this level.
Chinese stocks fell this week after the securities regulator indicated a week ago that the state will reduce buying and data showed the richest traders were cashing out.
South Korea’s Kospi index fell 1.5 percent. Japan’s Topix index slumped 2.4 percent. Australia’s S&P/ASX 200 Index slid 1 percent. New Zealand’s NZX 50 Index was little changed. Taiwan’s Taiex index slipped 1.7 percent and Singapore’s Straits Times Index sank 1.9 percent.
E-mini futures on the Standard & Poor’s 500 Index slid 0.4 percent. The underlying measure sank 2.1 percent on Thursday, falling out of a 70-point trading range that had held for most of the year.
‘Asia Epicenter’
“U.S. markets have held up well of late, being viewed as somewhat of a safe haven,” Chris Weston, chief market strategist in Melbourne at IG Ltd., said by e-mail. “This view seems to have deteriorated somewhat with the S&P 500 closing below its multi-month trading range. If we do see something much more pronounced in global markets, the epicenter is Asian emerging markets.”
Greek Prime Minister Alexis Tsipras announced he will step down with an eye to snap elections, a move the embattled leader will likely use to shut out dissenters and return to power with a more manageable coalition.
“Greece is a non-issue since a deal with creditors has been done,” White Funds’ Gluskie said. “He is trying to get a bigger mandate of support. If he gets the mandate, he would be in a better position in handling the Greek parliament.” [Bloomberg Ref]
FTSE Outlook
Its a bit tricky to know what it will do today. Its pretty bearish as I write this, and its OpEx Frday, so may just rise back up from the open. When everyones fearful, thats the time to buy as Buffet says. Certainly its usually the case when the FTSE sell off makes the headline news on the BBC the low isn’t far away. I have gone for an initial rise to the 6275 area then another dip to possibly test the overnight lows and we do have a decent PRT support line there as well. The 10 minute chart and the moving averages will be the one to watch I think as that should give an early idea of what prices are going to do. If the bulls do fight back and manage to break the 6275 resistance then the daily pivot at 6335 looks likely, and is likely to see some bears short from there. If we are on the cusp of a global slowdown (and some of this maybe just manipulation to keep rates low, play the game remember!) then the chance of rate rises next month is probably reduced. Generally I feel fairly positive and don’t think the financial markets are going to continue falling next week, and am watching the news flow as something positive will suddenly appear and then there will be a rush of more positive news.