Good morning. Nice rise for the long from 6580 yesterday after the initial dip though it took a while to break 6600, before stalling and then dropping with the budget and Yellen later in the day. Insurers were particularly badly hit (probably a buy on L&G (185ish) and Aviva (at these levels). I hold Aviva from 330. The main news yesterday from a UK perspective was of course the budget, as expected good for SME’s but also savers this time around. The FED hinted that interest rates may rise from the middle of 2015, which sent the market into a bit of a tailspin – bonkers really as they are going to rise at some point so no point in getting too het up about it. But the market loves an over reaction!
Asia Overnight from Bloomberg
Asian stocks fell, with a gauge of Chinese shares in Hong Kong poised to enter a so-called bear market, after the Federal Reserve signaled it may raise U.S. interest rates from the middle of next year.
The MSCI Asia Pacific Index fell 1.7 percent to 132.42 as of 12:50 p.m. in Tokyo, heading for the lowest close since Feb. 6. About five shares dropped for each that rose on the gauge. The Fed said yesterday its key rate, currently near zero, would be 1 percent by the end of 2015 and 2.25 percent a year later.
“We’re going to see more follow-through selling in Asia,” Toby Lawson, head of futures, options and cash equities trading for Asia Pacific at Newedge Group SA in Sydney, said by phone. “It’s significant that the Fed fund rate will rise to 1 percent by the end of 2015. We could see capital outflows from emerging markets back into the U.S., especially given residual concerns about China’s economy slowing.”
Japan’s Topix index dropped 1.5 percent after rising by as much as 0.6 percent. South Korea’s Kospi index and Australia’s S&P/ASX 200 Index declined 0.9 percent. New Zealand’s NZX 50 Index fell 0.2 percent. Singapore’s Straits Times Index slipped 0.4 percent, while Taiwan’s Taiex index slid 1.2 percent.
Bear Market
The Hang Seng China Enterprises Index (HSCEI) of mainland stocks traded in Hong Kong dropped 1.2 percent, bringing losses from a Dec. 2 high to near the 20 percent threshold that some investors consider a bear market. The city’s benchmark Hang Seng Index declined 1.2 percent.
US Futures
Futures on the S&P 500 slipped 0.3 percent today after the U.S. benchmark index fell 0.6 percent yesterday. The central bank’s bond-buying program, which was reduced by another $10 billion to a $55 billion monthly rate, will be wound down by year-end with a rate increase to follow within six months, Chair Janet Yellen indicated.
Stimulus Outlook
Yellen said the quantitative-easing program used to stimulate the U.S. economy would end this fall should the central bank continue to taper in measured steps. There will be “considerable time” between the end of the stimulus and the first rate increase, meaning “six months or that type of thing,” she said.
Most Federal Open Market Committee participants reiterated their view that rates will be held at current levels until 2015. The median forecast for rates among 16 Fed officials rose from December, when they estimated the rate at the end of next year at 0.75 percent, and 1.75 percent for the end of 2016. Officials said they will look at a wide range of data in determining when to boost borrowing costs, dropping a pledge tying interest rates to a 6.5 percent unemployment rate.
Hawkish Fed
“The FOMC was more hawkish,” said Anthony Valeri, a market strategist with LPL Financial Corp. in San Diego, which oversees $350 billion. “The expectation for higher rates got pushed forward and the bond market was not priced for that.”
The U.S. and Europe are moving to increase sanctions on Russia after President Vladimir Putin signed an accord setting in motion Crimea’s accession to Russian territory. With visa bans and asset freezes on Russian officials failing to sway Putin, European Union leaders meet today to consider their next move.
Ukraine ordered the removal of its military from the majority Russian-speaking Crimea and said it will strengthen its deployments on the country’s border with Russia.
FTSE Outlook
Well that rise from 6580 was short lived yesterday, and in fact it turned quite bearish for the latter part of the session. As it was likely to be fairly choppy/unpredictable with the budget and Fed, I opted to stay on the sidelines and wait for clearer opportunities, well done those that traded it successfully in the trading room. I was a bit hesitant yesterday being too bullish as you know as we were at the top of the Raffs, seems that wasn’t misplaced after all.
Today’s pivot is 6583 so that is likely to be resistance to any rises today and we are better off shorting rallies again for the moment, and I think we are looking at hitting the bottom of the 20 day Bianca channel at 6461 before too long, probably today is the bears really go for it. However, if the bulls fight back and break the pivot then we could be back at yesterday high of 6624. Personally I am thinking a short at the pivot for a run to 6461 is the better play. We have S3 at 6515 today so with a weak overnight we may see a bounce from there initially, then further declines.