Good morning. Well after that drop yesterday I feel the chances of seeing 6400 in September are pretty slim and it looks like the 6298 level hit earlier in the month will be the high of the rebound from he August lows. Talking of which I think we are on our way to retest them now, and probably a bit lower – looking at 5700 FTSE and 9300 Dax sort of areas. Felt a bit aggrieved that I had a Dax short at 10015 yesterday morning for the open and closed it at 9755… whoops! The initial FTSE short worked well from the 6119 level, but the supports just got blown away as the market endured another sharp decline. Interestingly that Gold short also worked out well, no flight to safety for that yesterday! Overnight has been poor with Chinese PMI missing too, so reigniting fears that if China slows the world slows.
US & Asia Overnight from Bloomberg
Asian stocks extended declines after a China factory gauge unexpectedly fell to the lowest since the depths of the global financial crisis.
The MSCI Asia Pacific Excluding Japan Index fell 2.1 percent to 399.04 as of 10:38 a.m. in Hong Kong, as commodity producers led declines after raw-material prices tumbled. Futures on the Nikkei 225 Stock Average slumped 3.4 percent in Singapore, with Japan’s equity market shut for a holiday. A private Chinese manufacturing gauge slid to the lowest since March 2009, underscoring challenges as the nation’s old growth engines splutter.
“China is at the front and center of investor concerns,” Chris Green, an Auckland-based strategist at First NZ Capital Ltd., said by phone. “These numbers would add a more cautionary tone to the market’s perception of the risks around the Chinese growth profile and further reinforces the risk off attitude in the market.”
China’s Shanghai Composite Index slipped 1.6 percent, heading for its first decline in four days. The Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong dropped 3.2 percent, while the city’s benchmark Hang Seng Index fell 2.3 percent.
Australia’s S&P/ASX 200 Index slid 1.9 percent. Taiwan’s Taiex index sank 1.8 percent. South Korea’s Kospi index slumped 1.3 percent. New Zealand’s S&P/NZX 50 Index lost 0.2 percent. Singapore’s Straits Times Index declined 1.1 percent. Futures on the Nikkei 225 traded at 17,380 in Singapore, with the underlying benchmark closing last week at 18,070.21. Trading resumes in Tokyo on Thursday.
U.S. Futures
The preliminary Purchasing Managers’ Index from Caixin Media and Markit Economics was at 47.0 for September, missing the median estimate of 47.5 in a Bloomberg survey and below the final reading of 47.3 in the previous month. Readings remained below 50 since March, indicating contraction.
E-mini futures on the Standard & Poor’s 500 Index declined 0.8 percent. The U.S. equity benchmark index dropped 1.2 percent on Tuesday as material companies retreated and Volkswagen AG’s diesel-emissions cheating scandal rattled global auto stocks.
The Federal Reserve stood pat on increase rates last week, citing global market turmoil and a slowdown in China. Then a quartet of Fed officials muddied the waters, talking up prospects for higher interest rates in 2015.
Odds of a increase at the next meeting in October are at 18 percent, according to Fed funds futures, while the probability of an increase by the last meeting of the year, on Dec. 16, is 39.3 percent. Fed Chair Janet Yellen is slated to speak later this week, potentially providing more clarity as to whether to expect a rate increase this year. [Bloomberg]
FTSE Outlook
I wouldn’t be surprised to see a bit of an initial bounce to start things off today as the daily RSI is at 30, we are just below the various daily support channels, there was a few headlines stoking the panic yesterday to get the retail investors to panic sell their shares, and we have had a large overnight drop. That said I think 5700 looks likely now, and unfortunately I don’t think 6400 in September is going to happen – 6300 was the max after that August low of 5800. We might see that level again today if the bears stay in control. There is a fairly steep declining 10min channel in play with resistance at 5925 and support at 5850ish at the moment. As mentioned on Monday, shorting the rallies is still the preferred option! The bulls will need to break above 6023 now to start pushing higher, which I think is a big ask until we have tested the lows – that said I will be looking to change sentiment as we near the 5750 area. Looking at shorts at 5920 and 5970 initially.