Good morning. Nice bounce off the 6800 level yesterday though it took a while to get going, and a nice rise virtually to our 6850 target thanks to the ECB and the negative interest rates. Unfortunately the short order at 6850 didn’t quite get hit which was a shame as the price fell right back to 6800 again for a nice double bottom bounce. Will have to see how the negative rates play out over the forthcoming months, though they didn’t go for more QE which was widely expected. Today of course is NFP (Non Farm Payrolls) in the US at 13:30, an increase of 210k expected. Going to get jumpy then!
Asia Overnight from Bloomberg
Asian stocks rose for the fourth straight week and emerging-market currencies strengthened after the European Central Bank cutinterest rates to fight deflation. The dollar headed for its best week since April versus the yen and U.S. index futures climbed before employment data.
The MSCI Asia Pacific Index added 0.3 percent by 1:31 p.m. in Tokyo, heading for its highest close since Oct. 22. Standard & Poor’s 500 Index futures added 0.2 percent. Japan’s Topix gauge rose for the 11th time in 12 days while the dollar is on track for a 0.6 percent gain against the yen this week. The Malaysian ringgit strengthened 0.4 percent versus the greenback and China’s renminbi increased the most since May 29. Copper and aluminum retreated while gold held yesterday’s 0.8 percent gain.
ECB
The ECB took deposit rates negative, the first major central bank to do so, and offered liquidity to lenders to encourage credit growth. Analysts predict 215,000 workers were added to nonfarm payrolls in the U.S. in May, after the biggest increase since the start of 2012 for April. The People’s Bank of China boosted the yuan reference rate by the most since January.
The ECB’s moves are “growth supportive and a lower interest-rate backdrop is positive for equities,” said Chris Green, director of economics and strategy in Auckland at First NZ Capital Ltd., which manages $1.4 billion. “There’s still the impression that the labor market in the U.S. is a relatively positive story. But it would be a surprise if momentum was maintained at the levels we saw in April, and so the expectation is that we’ll see some modest pullback.”
The ECB’s deposit rate was cut to minus 0.1 percent, while the benchmark refinancing rate was reduced by 10 basis points to 0.15 percent, with economists surveyed by Bloomberg projecting a deeper cut to 0.1 percent. The marginal rate was shaved by 35 basis points, or 0.35 percentage point, to 0.4 percent.
ECB President Mario Draghi said the central bank will begin new, “targeted” offerings of liquidity to banks to encourage them to lend money to the real economy. While conceding that rates are at the lower bound “for all practical purposes,” he signaled the ECB is willing to move again.
Asian Stocks
Nonfarm payrolls in the U.S. rose by 288,000 people in April, the most since a 360,000 advance in January 2012. Claims for American unemployment benefits climbed by a more-than-estimated 312,000 in the week to May 31, data yesterday showed.
The MSCI Asia Pacific gauge is up 1.2 percent this week, poised to cap the longest run of weekly gains since March. The Topix (TPX) added 0.2 percent today, headed for a weekly advance of 2.7 percent. The yen, regarded along with gold as a haven investment, was little changed at 102.34 per dollar after gaining 0.3 percent yesterday.
Hong Kong’s Hang Seng Index fluctuated. A gauge of Chinese companies listed in the city slid 0.2 percent as the Shanghai Composite Index retreated 0.6 percent. Australia’s S&P/ASX 200 Index rose 0.6 percent. South Korean markets are closed today for the second time this week.
Support
The International Monetary Fund said yesterday China’s policy makers still have tools to keep economic growth at a medium to high level. Trade data on June 8 may show exports climbed 6.6 percent from a year earlier in May, more than April’s 0.9 percent growth, according to the median estimate in a Bloomberg News survey.
“The fact that the ECB is taking further measures is a useful reminder of the massive policy support that global markets are still receiving, which should be supportive for global growth and risk assets,” Christian Hawkesby, head of fixed income and economics in Wellington at Harbour Asset Management Corp.
Jobs Data
S&P 500 futures are signaling the gauge will extend yesterday’s record close of 1,940.46. The U.S. Bureau of Labor Statistics report today may also show private payrolls, which exclude government agencies, increased 210,000 in May after a 273,000 gain in the previous month, according to the median estimate in a Bloomberg survey of economists.
Fed officials are watching the labor market as they move to complete their bond-purchase program late this year and start considering the timing of the first interest-rate increase since 2006. Central-bank stimulus has helped propel the S&P 500 up by as much as 187 percent from a bear-market low reached in March 2009. The gauge rose 0.7 percent yesterday to an all-time high of 1,940.46.
FTSE Outlook
The key slightly bigger picture levels I am watching today are 6800 for support again, and 6875 for resistance where we have both the top of the 10 and 20 day Bianca channels, as well as the 10 day Raff. If it spikes up to that level on NFP then that could well be a good short. The daily pivot is 6818 today, so we may well get initial support there, but its worth noting that the FTSE is lagging the S&P which yet again went on to make new highs. Or is the FTSE telling the truth and the others are just getting ahead of themselves (looking at the S&P likely to hit 1945 today).
Initial resistance today is 6848 then the 6875 area (with a stop above 6785). If that were to break then 6912 is in play as the next resistance. Support wise after the 6818 pivot is 6800 and then 6789. If the bears get fuelled by an NFP figure that upsets the market and really start to go for it then 6700 beckons.
I have put an initial rise to the 6845 area but pre NFP is going to be pretty choppy, with most keeping their powder dry.