Good morning. Well yesterday was a bit of a dull one after all that wasn’t it! We got the initial move with the rise to the 6466 line, then spent the rest of the day flat lining while waiting to see what happened in the US. Well they are now going to have the first government shut down for 17 years today as no agreement was reached. Doesn’t bode well for4 the debt ceiling talks on the 17th mind! Apart from that, it was all fairly quiet in the end, UK house prices are expected to rise 25% by 2018 according to news yesterday (but its not a housing bubble they say!). George Osborne pledged yesterday to freeze fuel duty till 2015, and also talked about his plan to squeeze public spending still, and then plan to have a budget surplus. Overnight we have had a little bounce to 6480 but since fallen back to yesterdays close level. I think a one day shut down will be shaken off by the markets quite easily, however, if negotiations drag on then it could get more serious and worries will start about the debt ceiling and a possible loggerhead situation with that as well, which will definitely drop the market down to that 6200 area I mentioned, probably in November. I am still optimistic of a decent finish to the year though, maybe around 6800?
Asia Overnight from Bloomberg
Asian stocks rose, led by Japanese shares, after Prime Minister Shinzo Abe said the nation will increase its sales tax as planned. Gains were limited by the first partial U.S. government shutdown in 17 years. The MSCI Asia Pacific Index rose 0.4 percent to 139.05 as of 1:48 p.m. in Tokyo. Japan will raise its sales tax in April to 8 percent from 5 percent, Abe said today in Tokyo. Lawmakers in Washington passed a midnight deadline without reaching a compromise to continue funding the government. Both sides of U.S. politics also are still in dispute over raising the nation’s $16.7 trillion debt ceiling.
“Shares are rising after Abe showed his leadership with the sales-tax decision, removing one uncertain factor,” said Ayako Sera, Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd. “But I don’t think the reaction will last long, as the tax increase was expected. A bigger issue is the U.S. Congress. The government has started a shutdown, making it hard for investors to make a move.”
The U.S. congressional standoff that shut down the government for the first time in 17 years is a buying opportunity for stock investors, if history is any guide.
The Standard & Poor’s 500 Index (SPX) has risen 11 percent on average in the 12 months following a government shutdown, according to data compiled by Bloomberg on the 12 instances since 1976. That compares with an average return of 9 percent over 12 months. In all the cases, the U.S. equity benchmark was higher by the end of the next two years.
While the S&P 500 has fallen seven of the past eight days on concern the political deadlock over the U.S. budget and debt limit will hurt the economy, investors at Raymond James & Associates and PNC Wealth Management say equities will recover as profits rise. Analysts’ forecasts show earnings will increase at the fastest pace in two years during the fourth quarter. More than 300 companies in the S&P 500 are scheduled to report results this month, according to data compiled by Bloomberg.
Today’s pivot is 6471 and I expect that we will get some resistance there, like the Dax I expect an initial bounce to there and then the bears to have another go. I still have a possible 6400 are attest, but it depends if yesterday’s low is broken, and with fib support at 6431 and 6416 it might not be a straight drop to that level. As mentioned above I am still feeling bearish now for a drop over the next couple of months (maybe a low in mid/end November) but equally am quite positive for the year end. As an aside I am still targeting a buy on Barclays at 217p and 250p so using that as a benchmark for the FTSE means we might still dip lower.