Good morning. Well that wasn’t very bullish yesterday at all, despite the fairly positively received Autumn Statement. Unfortunately it never even popped up to the resistance for the short to take and 6730 eventually broke leading to the 6715 pivot instead. That did hold but didn’t offer up lots of points for a bounce. Despite The US holding up pretty well and the S&P breaking that 2070, and nearly reaching 2077, after data showed widespread hiring across the US (Beige Book), the FTSE failed to gain much upward traction, most likely waiting for the ECB today. With yesterday lacklustre performance prices have dipped away from the top of the daily channels, though they remain around the 6770 area for the top and 6660 for support.
Asia Overnight from Bloomberg
Asia’s benchmark stock gauge rose, buoyed by surging Chinese shares and Japanese equities following the dollar to its strongest level since 2007 versus the yen. Gold slipped while oil climbed.
The MSCI Asia Pacific Index added 0.5 percent by 2:48 p.m. in Tokyo, as Japan’s Topix index rose 0.7 percent toward the highest level since December 2007. The Shanghai Composite Index jumped 2.6 percent. Standard & Poor’s 500 Index futures fluctuated with the greenback at 119.90 yen and near a two-year high against the euro before the European Central Bank decides policy. Gold lost 0.3 percent. Australian bonds rallied, while oil in New York rose 0.8 percent.
Global bond yields are holding near historic lows before the ECB decision today amid speculation policy makers are moving closer to buying government debt to combat deflation. Investors are awaiting U.S. payroll reports tomorrow after private data yesterday showed steady hiring and a accelerating services growth. China’s benchmark stock gauge surged 16 percent since Nov. 19 as an interest-rate cut and speculation for further easing drove record turnover.
“We have the back-to-the-future theme” in markets now, said Sean Darby, chief global equity strategist at Jefferies Hong Kong Ltd. “We have the sort of environment we had in the late 1990s, which tends to point us to a pretty good period in equities. Low bond yields, no inflation, commodity prices well behaved, and equities did quite well during that period.”
Japanese Shares
Japan’s Nikkei 225 Stock Average added 0.8 percent, headed for its highest close since July 2007. Japanese equities have been climbing amid a retreat in the yen after Prime Minister Shinzo Abe put off a second increase to the nation’s sales tax and called a snap election. The Bank of Japan also unexpectedly bolstered stimulus Oct. 31.
Hong Kong’s Hang Seng Index increased 0.8 percent and a gauge of Chinese companies listed in the city added 2.5 percent. Hong Kong’s benchmark stock gauge fell 2.3 percent this week through yesterday, when the measure dropped 1 percent as short-selling turnover on the city’s bourse surged to HK$20.1 billion ($2.6 billion), the most on record.
The Shanghai Composite Index, which closed at the highest level since July 2011 yesterday, is up for the 10th time in 11 days. The volume of transactions was 27 percent above the 10-day average for the time of day today after turnover on the exchange jumped to an all-time high yesterday.
The benchmark gauge for mainland China’s biggest venue may rise to the 4,000 to 5,000 range next year, 21st Century Business Herald reported, citing Yin Zhongli, a vice director at the Chinese Academy of Social Sciences’s financial market research office. It closed at 2,779.53 yesterday.
Oil Gains
WTI oil rose for the third time in eight days, climbing to $67.89 a barrel in New York. Data from the U.S. Energy Information Administration showed the nation’s oil inventories dropped by 3.69 million barrels last week, after analysts forecast an increase of 1.75 million.
Brent oil climbed 0.4 percent after falling 0.9 percent last session to a more-than-four-year low of $69.92 a barrel as investors continued to digest as decision last week by the Organization of Petroleum Exporting Countries not to cut production.
The yen slid as much as 0.1 percent to 119.95 per dollar today, the weakest level since 2007. The currency hasn’t breached 120 since July of that year.
Some $3.01 billion in options contracts with strikes at 120 yen per dollar expire today, according to data compiled by Bloomberg, with a further $2.28 billion due on Dec. 8.
The won dropped to 1,115.55 per dollar as the weaker yen stoked concern Japanese exporters will gain a competitive advantage.
Main Game
The euro slipped to $1.2306 today after touching $1.2301, the lowest level since August 2012, last session. The ECB will leave its main rates unchanged today, according to economists surveyed by Bloomberg.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed after gaining 0.3 percent yesterday to its highest close since March 2009.
“Tonight’s ECB meeting is likely to be the only game in town,” Mark Smith, a senior economist in Auckland at ANZ Bank New Zealand Ltd., wrote in a client note. “While QE at this juncture is probably a step too far, it would be a bolt out of the blue should it occur. Rate hikes look to be a forgone conclusion if the U.S. economy remains strong.”
Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.37 percent. The figure has been less than 1.4 percent for almost two weeks. It fell to 1.33 percent in October, the lowest level since May 2013. U.S. Treasuries are drawing support because they yield more than bonds in Europe or Japan as the Federal Reserve prepares to raise interest rates.
Aussie Bonds
The yield on Australia’s five-year government note reached 2.487 percent, lowest since Oct. 2012 and below the Reserve Bank of Australia’s benchmark cash rate for the first time since June last year. The rate on three-year notes fell as much as six basis points to the lowest since July 2012.
The central bank will lower its overnight cash rate target by a quarter percentage point in the next 12 months, a Credit Suisse Group AG index based on swaps shows.
The S&P 500 rose 0.4 percent last session to an all-time high of 2,074.33, while the Dow Jones Industrial Average added 0.2 percent to a record 17,912.62.
Data yesterday showed service providers from U.S. retailers to builders expanded in November at the second-fastest pace in more than nine years. U.S. companies added 208,000 workers in November, figures from ADP Research Institute indicated, below the 222,000 increase projected in a Bloomberg survey and down from a revised 233,000 in October. Economists forecast nonfarm payrolls rose by 230,000 employees in November, up from 214,000 in the previous month.
The Federal Reserve’s Beige Book was also released yesterday, and indicated there was “widespread” hiring across districts as the U.S. economy continued to expand.
FTSE Outlook
Support today is initially at 6711, yesterdays low, with 6694 and 6660 below that. Splitting the difference would expect 6675 if the 20 day Bianca channel broke. I am expecting a test of the 6750 area though, and we have a fairly key PRT resistance line here. If this is exceeded then it brings the top of the daily channels into play as we have both the 10 day Bianca at 6769, and the 10 day Raff at 6773. If yesterdays weakness continues then the bulls will, I feel, struggle to break the 6750 area. I can’t see them exceeding the 6796 resistance area today, unless ECB suddenly announce QE or something later that is unexpected. They will more than likely keep rates the same as well. For today I have plotted an initial rise to that 6750 area where I expect we will stall then a dip down to test yesterday low at 6711. The S&P is not far off the top of its 10 day Raff at 2079 so that might stutter there and any dip will be reflected on the FTSE too.