Good morning. Was a bit too soon to be bearish yesterday I think, though it started off as per the plan with the dip to 6675. It then spent the rest of the day trending up, despite the politicians trying to talk it down (they couldn’t be trying to spook people so that we are all pleasantly surprised when we have a recovered economy just prior to the general election could they?!). The shorts made few points anyway, before the dips were retraced. I do hate trending days as you don’t know they will do that really until after the event. The daily chart is still bullish and I expect, if 6730 is broken, that we will be testing the top of the Raff channels soon, at 6780/6800.
Asia Overnight from Bloomberg
Asian stocks fell while U.S. oil extended its slump and gold retreated. The dollar climbed, reaching a seven-year high against Japan’s yen after Prime Minister Shinzo Abe called an early election and postponed a sales-tax increase.
The MSCI Asia Pacific Index dropped 0.5 percent by 3:12 p.m. in Tokyo, with Hong Kong’s Hang Seng Index extending declines to a third day amid plunging use of a new link with the Shanghai bourse. The Bloomberg Dollar Spot Index added 0.2 percent, with the greenback rising as high as 117.42 yen. Standard & Poor’s 500 Index futures slipped 0.1 percent after the gauge climbed to a record. New York oil fell 0.4 percent as gold slipped 0.2 percent.
Abe said late yesterday that parliament would be dissolved Nov. 21 and the sales-tax increase delayed for 18 months. With the world’s third-largest economy back in recession, the Bank of Japan today retained its expanded target for growing the monetary base. Investors are awaiting minutes of the Federal Reserve’s October meeting, when it ended its bond buying program.
“Abenomics needs to step up and step up quickly,” said Sam Tuck, a senior foreign-exchange strategist at ANZ Bank New Zealand Ltd. in Auckland. “Those policies that they promote will have a yen weakening effect.”
Japan’s prime minister also ordered his cabinet to start preparing a stimulus package yesterday, and said that he would submit a bill for an extra budget to parliament next year. Japan’s economy shrank an annualized 1.6 percent last quarter after contracting 7.3 percent in the preceding three months, when the sales tax was last increased.
Stock Advance
The Nikkei 225 Stock Average slid 0.3 percent, while the broader Topix index climbed 0.1 percent. The Nikkei 225 climbed 5.7 percent this month through yesterday after the BOJ on Oct. 31 unexpectedly increased its monetary base expansion goal and as speculation over the sales tax delay mounted.
In the 11 Japanese elections since 1980, the Topix has posted average total returns of 3.1 percent between the dissolution of parliament and the vote, according to data compiled by Bloomberg and Daiwa Securities Group Inc. Citigroup Inc. says the same will happen this time, led by gains in property developers and financial stocks.
The yen today touched the weakest level since Oct. 16, 2007, before trading at 117.32. The currency was 0.3 percent lower at 146.96 per euro, the lowest since October 2008.
U.S. Recovery
Bloomberg’s dollar gauge, which tracks the greenback versus 10 major peers, rose for the second time in three days. The U.S. currency is up at least 5.8 percent against all Group of 10 peers since the end of June amid speculation the American economy is strong enough for Fed policy makers to consider raising benchmark interest rates. The minutes for release today are from the U.S. central bank’s Oct. 28-29 meeting.
The Hang Seng Index (HSI) fell 2.3 percent in the previous two days. A gauge of Chinese companies listed in the city dropped 0.6 percent today, while the Shanghai Composite Index slid 0.2 percent.
Hong Kong Exchanges & Clearing Ltd. retreated 2.8 percent, heading for its biggest three-day drop since 2011, as flows through the link with its Shanghai counterpart slowed to a trickle.
Net purchases of mainland equities by global investors totaled 1.1 billion yuan ($180 million) at the midday break, down from 2.7 billion yuan at the same time yesterday and 10.6 billion yuan on Nov. 17. Hong Kong stock buying slowed 66 percent from yesterday to 117 million yuan.
S&P 500
Nine of the 10 main S&P 500 groups rose last session amid the index’s first move of more than 0.1 percent in six days. The Dow Jones Industrial Average (INDU) rose 0.2 percent yesterday, also extending its record.
The S&P/ASX 200 Index slipped 0.6 percent in Sydney, led by declines in mining shares and energy producers. The Australian dollar was down 0.6 percent to 86.68 U.S. cents. The price ofiron ore, Australia’s biggest export, tumbled 4.4 percent yesterday at China’s Qingdao port, to the lowest level since June 2009.
New Zealand’s dollar, known as the kiwi, dropped 0.6 percent to 78.72 U.S. cents, snapping a six-day advance after whole-milk powder prices fell at the fortnightly GlobalDairyTrade auction.
West Texas Intermediate crude dropped to $74.32 a barrel after sinking 1.4 percent yesterday. The U.S. Senate rejected legislation approving the construction of TransCanada Corp.’s Keystone XL oil pipeline. The House of Representatives passed its own version of the bill last week. Canada’s dollar retreated 0.3 percent to C$1.1323.
Venezuela Meet
Brent oil climbed 0.3 percent today after falling 1.1 percent yesterday in London to $78.47 per barrel amid speculation OPEC will agree to cut oil production at its meeting next week.
Venezuela, a member of the Organization of Petroleum Exporting Countries, met with Russia to discuss ways to support oil prices, the foreign ministry in Caracas said this week. OPEC, responsible for about 40 percent of global supply, will discuss output at a Nov. 27 meeting in Vienna.
Gold fell to $1,194.11 per ounce on the spot market, after jumping as much as 1.5 percent yesterday to $1,204.68, its highest intraday price since Oct. 30. Silver slipped 0.2 percent to $16.1680 an ounce following yesterday’s 0.3 percent advance. Platinum retreated 0.6 percent.
FTSE Outlook
Todays daily pivot is 6698 so I am expecting a little dip to start with to that level, if that holds then a rise to yesterdays high at 6730 looks likely. The bulls will need to break that 6730 to enable a climb higher, which looks likely to test the top of the Raffs at 6780 and 6800. Unfortunately google finance hasn’t updated with the FTSE prices for yesterday so Bianca can’t update, but yesterdays channel tops were around 6730, and would probably be around 6750 for today. A long off the pivot could well work well if this rise is going to continue, otherwise a break below would likely fall to 6624 (raff channel bottom area) as the bears see a glimmer of hope for some downside action and hop on a support break. Below that sees 6599, 6574 (25ema on daily) and possibly as low as 6510. The daily RSI (not an indicator in itself but a gauge of overbought/oversold, is still above 70 (overbought), but has been for a while now.
So, 2 key levels to watch – 6730 and 6698. A break of either could get quite a few points as the next levels above and below are quite far away. I have put a fairly tight stop on the pivot long; if it hits the stop then i will flip and reverse and go short to target the 6624 area, otherwise run the long to hopefully higher than 6730.