Good morning.
Market Summary for Friday
The main feature of Friday’s trade was the unexpected decision by the Bank of Japan to adopt negative interest rates to boost its economy.
This move is expected to put pressure on the U.S. Federal Reserve, ECB and BoE to adopt a more dovish stance on future interest rate rises.
Stimulus packages which come out of the blue tend to affect markets in a big way and so it was the case on Friday. The FT100 having already opened quite strongly got another push upwards on a positive open on Wall Street, eventually closing at 6083 for a rise of 2.56%. In after hours trading it pushed higher again to breach 6100 but whether this will hold on the next live open is unclear.
US & Asia Overnight from Bloomberg
Asian stocks rose, with the regional benchmark index heading for its fourth day of advances, as shares in Tokyo extended Friday’s rally after the Bank of Japan stepped up its monetary stimulus.
The MSCI Asia Pacific Index gained 0.4 percent to 121.82 as of 9:05 a.m. in Tokyo, extending its longest winning streak of the year as optimism grew that central banks around the world will support financial markets.
Policy makers took the sting out of the worst start to a year since 2009 for global equities, helping to ease a selloff that wiped more than $5 trillion from market value. The European Central Bank’s indication it could expand stimulus as soon as March was followed by the Federal Reserve standing pat on interest rates and noting its concern over the global situation. The BOJ outdid them both, shocking investors Friday by joining the ECB in imposing negative rates, a strategy once considered unthinkable among central bankers that’s aimed at stoking spending.
“The BOJ’s action on Friday helped — it’s a situation where you get short-term relief when central banks make supportive announcements or ease policy,” Steven Milch, chief economist at Suncorp Wealth Management in Sydney, said by phone. “I’m not sure central bank actions are a panacea, but they do help in relation to investor sentiment. Uncertainty is clearly very high and it is possible that some markets have overshot on the downside. There’s a possibility that risk aversion and volatility diminish as we go forward.”
Regional Gauges
Japan’s Topix index jumped 1.2 percent, adding to Friday’s 2.9 percent surge, as the yen maintained losses near a six-week low. South Korea’s Kospi index advanced 0.2 percent. Australia’s S&P/ASX 200 Index gained 0.9 percent. New Zealand’s benchmark gauge increased 0.4 percent.
Futures on the FTSE China A50 Index added 0.4 percent in most recent trading, while those for Hong Kong’s Hang Seng Index slipped 0.7 percent. The Shanghai Composite Index rallied 3.1 percent on Friday amid speculation the steepest monthly selloff since the global financial crisis was overdone, while the central bank injected more liquidity into the financial system to avert a cash crunch before this month’s holidays.
China’s purchasing managers index for manufacturing may signal continued contraction for January, according to a Bloomberg survey of economists before data due Monday. The National Bureau of Statistics is scheduled to announce the official manufacturing and non-manufacturing PMIs at 9 a.m. local time, while Caixin Media and Markit Economics will release their own manufacturing gauge at 9:45 a.m.
E-mini futures on the Standard & Poor’s 500 Index fell 0.1 percent on Monday. The U.S. equity benchmark gained 2.5 percent on Friday as earnings from Microsoft Corp. exceeded forecasts.
Oil rose as much as 1.7 percent in New York on Monday before erasing gains to trade 0.2 percent lower. West Texas Intermediate crude capped a second week of gains on Friday amid speculation OPEC and Russia will meet to discuss output cuts and other moves to boost prices. [Bloomberg]
FTSE Outlook and Prediction
It looks like Fridays closing strength has carried on through the weekend to today in that we haven’t really dropped back much on the FTSE and Asia had a fairly positive Monday, despite weaker Chinese manufacturing data. There seems to be stimulus being thrown at it from all directions, after that weak January has spooked everyone. BoJ, ECB, Fed, etc are all either intimating or doing something – certainly took the sting out of the tail of January’s falls. Anyway…for today there is a cluster of resistance levels around the 6160 area on a couple of the charts so if we reach this level then I would expect a bit of bearish activity there. With the daily pivot at 6056 that is likely to be the main initial support area today. Above 6160 then there is a rising 30min channel in play with resistance at 6190, though I am not too sure that we will reach that high today. I am thinking that after that strong out of hours rise to 6128, if the bulls step up today then 6160 might be the limit. Back when the FTSE was at 5600 there was resistance on the daily charts at 6120, a level that did look pretty unlikely at the time, but here we are. So, it will be interesting to see if we exceed 6128 at all today, which was Fridays high. Initially I have gone for a dip back to the 25ema on the 30min at 6095 where there is also a PRT support, and as mentioned already below this then 6056 should hold. We also have the HULL 100 MA at 6034 as current support, and with no particularly bearish news about then we may see the buy the dippers coming in. We usually get 2 weeks of bad news flow, then 2 weeks of good news flow, so in theory we are nearing the end of the good news flow… All things being equal I am a bit more sceptical of too much further upside from the 6120 area – its been quite a bounce from 5600 – with 6160 possibly being the limit.