Good morning. Yesterday played out pretty well with the support level at 6885 holding (though it looked a bit dubious for a short while!) and a strong rise off the back of it, while the S&P pushed ahead (and is still likely to be heading for that 2140 area). The FTSE bulls need to break 6990 if they are going to push towards the 7150 area but not sure that today will be the day for that. Not too much coming out on the news front today, but there is a US confidence report at 3pm which is forecast to be 95.9, same a previous and might have a small effect on the prices at that time.
US & Asia Overnight from Bloomberg
Chinese shares slid, cutting their gains since an interest-rate cut in half, while the dollar pared its fifth straight weekly retreat. Asian bonds followed gains in the U.S. and Europe, while oil headed toward its longest rising streak in 32 years.
The Shanghai Composite Index tumbled 2 percent by 12 p.m. in Tokyo, trimming its advance since China cut rates this week to 2 percent. The MSCI Asia Pacific Index fluctuated and Standard & Poor’s 500 Index futures were little changed after an all-time high. The Bloomberg Dollar Spot Index trimmed its drop since May 8 to 1 percent. Australian and Japanese bond yields fell. U.S. crude dropped, trimming its ninth straight weekly advance.
Chinese shares, which more than doubled over the last 12 months, are paring gains on concern that a slew of initial public offerings will tie up funds amid weak economic growth. With disappointing economic data damping the outlook for higher U.S. interest rates, the weaker dollar buoyed the outlook for U.S. exporters and drove the S&P 500’s first increase this week. Bond markets took a breather from the selloff that has erased more than $400 billion in value the past three weeks.
“China remains a concern,” Tim Schroeders, a portfolio manager who helps oversee about $1 billion in equities at Pengana Capital Ltd. in Melbourne, said by phone. “We need to see an improvement in the economy and a bottoming out of the property market.”
China Outlook
China reported a 10.5 percent jump in foreign-direct investment in April, beyond even the most optimistic estimate. House-price data for April is due Monday. Policy makers announced their third interest-rate cut in six months last weekend as they strive to reinvigorate growth.
The Shanghai Composite dropped more than 5 percent last week, its first such retreat since the beginning of March. The Hang Seng China Enterprises index, which tracks mainland companies listed in Hong Kong, dropped 0.5 percent Friday to take its fourth straight weekly retreat to 2.4 percent.
Seven of the 10 industry groups on the Asia-Pacific stock gauge climbed this week. An MSCI gauge of emerging-market equities is little changed for the week.
Japan’s Topix index rose 0.4 percent, set for a weekly gain of 0.6 percent. Australia’s S&P/ASX 200 Index climbed 0.4 percent, bringing its increase since May 8 to 1.5 percent.
The Kospi index in Seoul erased gains to drop 0.6 percent after the Bank of Korea left key interest rates on hold. Three-year Korean bond yields rose four basis points, or 0.04 percentage point, to 1.90 percent.
Dollar Weakness
Bloomberg’s dollar gauge, which tracks the U.S. currency against 10 major peers, was little changed near a four-month low. The measure slid 0.3 percent Thursday to close at its lowest level since Jan. 21.
The dollar has retreated after climbing nine straight months through March on speculation the first rate increase in almost a decade was looming. Lackluster U.S. economic reports have forced investors to push back bets on the timing of the Federal Reserve’s liftoff.
The greenback was steady at $1.1408 per euro, headed for a weekly drop of 1.9 percent. The euro briefly trimmed gains Thursday after European Central Bank President Mario Draghi pledged to implement its bond-buying program “in full.”
New Zealand’s dollar weakened 0.3 percent to 74.74 U.S. cents, falling for the first time in four days. The Australian dollar declined a second day, losing 0.3 percent to 80.58 U.S. cents and trimming its gain in the week to 1.5 percent, still the most since March.
Yields Fall
Japanese 10-year yields dropped three basis points to 0.415 percent, while rates on Australian 10-year bonds slipped seven basis points to 2.93 percent. Yields on New Zealand government notes due in a decade fell for the first time in four days, declining four basis points to 3.72 percent.
Ten-year Treasury yields were little changed at 2.23 percent after slipping six basis points last session, when rates on 10-year German debt dropped two basis points to 0.70 percent, their first decline this week. More than $400 billion has been wiped off the value of global bonds in May, led by a rout in bunds amid speculation inflation is recovering.
Investors in the U.S. and Europe clamored to buy securities at government debt auctions this week, even as prices of outstanding bonds tumbled in secondary-market trading.
West Texas Intermediate crude fell 0.3 percent to $59.73 a barrel, paring its gain in the week to 0.5 percent after data showed the biggest drop in U.S. refinery activity in four months cut crude demand.
Oil Supply
Refinery utilization slowed by 1.8 percentage points last week, the biggest decline since Jan. 16, the U.S. Energy Information Administration said Wednesday. Oil supply from both the Organization of Petroleum Exporting Countries and U.S. shale drillers is set to expand later this year, weighing on prices, hedge fund manager Pierre Andurand said.
Wheat futures for July delivery added 0.3 percent to $5.155 a bushel on the Chicago Board of Trade, after surging 6.8 percent Thursday, the biggest jump for a most-active contract since June 25, 2012. Prices climbed on speculation hedge funds exited record bearish bets amid concern that storms will damage crops in the U.S., the world’s top exporter. [Ref]
FTSE Outlook and Forecast
Well here we are again with another “Funny Friday”. Today has initial resistance clustered at around the 6985/6995 area so I think any initial rise might stall in this area. Above this area we have the Bianca channel tops at 7037 for the 20 day and 7064 for the 10 day. The 6990 level is the daily 25ema, and technically the daily EMAs are still bearish. Pivot level for today is 6948 so there is support from that, though the 200ema on the 30min at 6966 might well hold, at least initially for a push towards that 6990 area. It will be interesting to see what happens at this level as if the bears start to pile in then a decline to the pivot, and possibly the bottom oft he 30minute channel at 6915 (and a slightly lower channel at 6900) might well be on the cards. I am inclined to try a small short (as its Friday, reduced stakes) at the 6990 area. The ASX200 (Australia) followed a similar pattern to what I am thinking for the FTSE with a rise and then a dip. If the pivot holds (6948) then we could revisit 7000 and see 7150 next week (which might tally with the S&P hitting 2140) before larger declines.