Good morning, hope you had a good weekend. Not much seems to be dampening the bulls at the moment, even the IMF admitting to underestimating the UK growth, which is being reflected in the FTSE. Though its lagging the US a bit – the S&P and Dow continue to make record highs, but is not far off its all time highs at 6930. Interestingly to start today we are at the top of the 10 and 20 day Bianca channels at 6880 so an initial dip might happen. Apart from the attack at Karachi airport, and the IMF admitting they were wrong the news was fairly quiet over the weekend. If the FTSE breaks its all time highs you could say the recovery is complete from 2007 and we are into a growth phase, though the housing market overheating could cause a wobble.
Asia Overnight from Bloomberg
Asian stocks rose, with the regional index headed for a seven-month high, while emerging-market currencies climbed after U.S. payrolls, Chinese exports and Japanese economic growth beat estimates. The cost of insuring Asian debt fell toward a 13-month low and wheat jumped.
The MSCI Asia Pacific Index climbed 0.3 percent by 12:25 p.m. in Tokyo, rising a third day. Standard & Poor’s 500 Index futureswere little changed after a record close June 6. Hong Kong’s Hang Seng Index added 0.8 percent and the yuan gained to the highest this month after China recorded the biggest trade surplus in five years. Malaysia’s ringgit touched the strongest level since November. The Markit iTraxx Asia index of credit-default swaps dropped two basis points to the lowest since May 2013. Wheat rose 1.1 percent.
Japan’s economy, Asia’s second largest, expanded an annualized 6.7 percent in the first quarter, faster than the preliminary reading of 5.9 percent and the median economist forecast of 5.6 percent. Chinese exports beat projections, rising 7 percent last month from a year earlier. James Bullard, president of the Federal Reserve Bank of St. Louis, speaks on the U.S. economic outlook in Tennessee today after U.S. nonfarm payrolls topped a pre-recession high in May.
“Fundamentally, the global economy is improving,” Keith Poore, who helps manage $131 billion as head of investment strategy at AMP Capital Investors Ltd. in Wellington, said by phone. “The backdrop is really positive for equities. As long as we see low inflation and supportive central bank policies, the rally looks sustainable.”
Economists predicted overseas shipments from China climbed 6.7 percent in May, after rising 0.9 percent in April. The 1.6 percent drop in imports from a year earlier defied the 6 percent increase predicted in a Bloomberg survey and came after a 0.8 percent advance in April. The trade surplus swelled to $35.92 billion, exceeding the $22.6 billion gap forecast by economists, data from the customs administration yesterday showed.
Yuan Fixing
“China’s export numbers were better than expected and the U.S. economy is still doing well, which helps overall optimism for the market,” said Francis Lun, the Hong Kong-based chief executive officer at Geo Securities Ltd. “The pace of growth has been slowing in China, but recent figures show things are OK.”
China’s central bank raised its daily yuan fixing by the most since October 2012, boosting the daily reference rate by 0.22 percent to 6.1485 per dollar, giving the currency less scope to depreciate. The spot rate strengthened as much as 0.2 percent to 6.2352 per dollar inShanghai, China Foreign Exchange Trade System prices show. That was 1.4 percent weaker than the fixing, within the 2 percent limit of the yuan’s trading band.
Peace Talks
Peace talks between Russia and Ukraine are being held in Kiev, with the former Soviet republic’s new president, Petro Poroshenko, saying in a statement on his website that the violence in Ukraine must end this week. Talks yesterday included Ukrainian ambassador to Germany Pavlo Klimkin, Russia’s envoy to Ukraine Mikhail Zurabov and Heidi Tagliavini, a special representative for the Organization for Security and Cooperation in Europe.
Russia, the world’s biggest energy exporter, has been embroiled in a conflict with Ukraine since the smaller nation’s president was ousted earlier this year, spurring Russian-speaking regions in the east to declare their autonomy and affiliation with Russia. The U.S. and Europe, which are levying sanctions against Russia, accuse President Vladimir Putin’s administration of encouraging the division and sponsoring separatists and unrest.
Profit Taking
While the S&P 500 has rallied for 10 of the last 12 days and advanced each of the last four months, investors have been withdrawing money from the market. About $4 billion was pulled last month from the S&P 500 ETF, the world’s biggest with $164 billion in assets, data compiled by Bloomberg show. Funds that buy domestic shares have received $4.8 billion this year, compared with deposits of $25 billion in bonds.
Most Hated
“This is one of the most-hated bull markets,” Stephen Solaka, who helps oversee about $150 million as managing partner of Belmont Capital Group in Los Angeles, said by phone. “A lot of people are praying for the market to fall. There are a lot of professional shorts. It’s been a painful trade.”
Hedge funds that specialize in short selling have been punished by the strongest bull market since the technology bubble in 2000. They’ve endured losses in four of the past five years and returned minus-1.8 percent this year through May 31, according to Hedge Fund Research Inc.
The difficulty of shorting in 2013, which saw the broadest bull market since at least 1990, has driven investors out of the strategy. The average company in the S&P 500 has about 2.3 percent of its shares borrowed to speculate on declines, near an all-time low, Markit data show.
FTSE Outlook
And so it continues, rising and rising, taking out the stops and squeezing the shorters. Today I am going to put a bit of faith in this 6880 area acting as initial resistance as we have both the Bianca channels here so an initial dip to the pivot. In fact there is the short from Friday at 6875 in play now, though the earlier one at 6847 got stopped (fortunately only for -8 as had a tight stop).
Pending any bad news it does look like the rise is set to continue, though I am bearing in mind that once all you hear is bullish sentiment, its the time to be worried.
Ultimately, if the bulls can break 6885 today then 6930 and those all time highs look very achievable, and of course a close above that puts 7000 within easy reach. I did expect that later in the year, early 2015 going into the election – maybe they have peaked too early?