Good morning I hope you had a good weekend. Friday actually went according to plan for once, with fairly strong end to the week. The bulls still haven’t quite reached the 6690 area where I think we may see a stutter, though the Bianca channels have their tops at around the 6720 area today – the channels still rising at the moment. With the dip on Sunday night (mainly due to Putin leaving the G20 early and the little bit of associated worry), we are nearly at the bottom of the daily channels – just below the 10 day Bianca and the 20 day is at 6603. The 10 day Raff is also 6606. Bulls will need to hold above 6575 really, to continue this rise. PM David Cameron has been warning about another financial crisis in the news this morning, while Japan has unexpectedly entered another recession – hence the QE the other week. I wouldn’t be surprised to see a dip soon, (maybe from 6740, top of the Raffs?) before the “Santa Rally” (if it happens) starts mid to late December.
Asia Overnight from Bloomberg
Japanese shares tumbled with U.S. index futures and the yen rebounded after the world’s third-largest economy unexpectedly entered recession. Chinese shares were mixed and the yuan gained as a trading link between Hong Kong and Shanghai began, while New Zealand’s dollar advanced.
Japan’s Topix index dropped 2.6 percent and the yen gained 0.5 percent by 3:17 p.m. in Tokyo as gross domestic product shrank 1.6 percent last quarter from a year before, missing projections for a 2.2 percent gain. Standard & Poor’s 500 Index (SPX) futures slid 0.4 percent. Shanghai shares pared gains and the yuan strengthened as investors filled a quota for daily equity buying via Hong Kong. The yield on 10-year Treasuries dropped. The so-called kiwi added 0.7 percent.
The yen touched the weakest level since 2007 early today amid speculation the GDP miss will prompt Prime Minister Shinzo Abe to postpone a planned sales-tax increase. As investors gain mutual access to China’s biggest stock-trading venues for the first time, the country’s banks reported the biggest jump in bad loans last quarter since 2005. Weaker outlooks in the world’s second- and third-largest economies underscore the challenge for Group of 20 leaders who agreed at the weekend to boost member output by a collective $2 trillion by 2018.
“It’s official, Japan is now in recession,” Jesper Koll, the head of Japan equity research in Tokyo at JPMorgan Chase & Co., said in a Bloomberg TV interview. “The prime minister in all likelihood is going to say, look, we’re going to reduce the likelihood of Japan falling into recession again next year by taking away the VAT hike. Vote for me, endorse me, to stick through with this policy.”
Tax Impact
Japan’s second straight drop in GDP, matching the textbook definition of a recession, followed a 7.1 percent contraction in the second quarter that coincided with an increase in the national sales tax from 5 percent to 8 percent. Unadjusted for price changes, the economy contracted an annualized 3 percent in the three months through Sept. 30, the Cabinet Office said. Japanese stocks slumped.
Just one of the 33 industry groups on the Topix climbed today as Japan’s broadest equity measure plunged the most since Oct. 2. The Nikkei 225 Stock Average retreated 3 percent.
U.S. equity index futures are signaling declines after the S&P 500 closed at a record 2,039.82 on Nov. 14. The new high masked the smallest market moves since 1979 as the 9.5 percent rally from October’s low ground almost to a halt.
Contracts on the Dow Jones Industrial Average weakened 0.4 percent and those on the Nasdaq 100 Index slipped 0.3 percent.
U.S. 10-year yields declined four basis points to 2.28 percent, according to Bloomberg Bond Trader data. The price of the 2.25 percent security due November 2024 advanced 11/32, or $3.44 per $1,000 face amount, to 99 22/32. A basis point is 0.01 percentage point.
China Slowdown
Japan’s 10-year yield dropped to 0.475 percent. Australia’s slid seven basis points to 3.26percent.
The Bloomberg Dollar Spot Index dropped 0.2 percent, declining for a second day as the yen bounced off a seven-year low of 117.05 to the greenback that was hit immediately after the GDP report. Japan’s currency plunged 6.6 percent in the 12 trading days from the close on Oct. 30 — the day before theBank of Japan increased its record stimulus — through to today’s low.
“Japan’s GDP data added to some of the market’s concerns about the global growth outlook and the extent to which the recent rallies in the U.S. dollar and U.S. assets can be justified,” said Greg Gibbs, head of Asia-Pacific Market Strategy at Royal Bank of Scotland Group Plc in Singapore.
The euro strengthened 0.2 percent to $1.2544 and the U.K. pound advanced 0.3 percent to $1.5719. The New Zealand dollar traded at 79.6 U.S. cents after a better-than-estimated retail sales report.
Stock Link
The yuan climbed 0.07 percent to 6.1258 per dollar in offshore trading, according to data compiled by Bloomberg. In Shanghai, the currency advanced 0.09 percent to 6.1254, China Foreign Exchange Trade System prices show.
The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong retreated 1.6 percent and the Shanghai Composite Index swung to a gain of 0.2 percent. Hong Kong Exchanges & Clearing Ltd., the best-performing stock on the Hang Seng Index (HSI) this year, dropped 2.5 percent.
The 13 billion yuan ($2.1 billion) daily quota for international investors buying China shares was filled by 1:57 p.m. in Hong Kong. That compares with just 14 percent of the allowance for purchases of Hong Kong shares by investors in mainland China. When the daily quotas are used up, buying through the program is halted for the day.
China is heading for the weakest economic expansion since 1990, and Communist Party leaders have discussed lowering the nation’s growth target for 2015, according to a person with knowledge of their talks.
Nonperforming loans rose 72.5 billion yuan from the previous quarter to 766.9 billion yuan, the China Banking Regulatory Commission said in a statement on Nov. 15. Soured credit accounted for 1.16 percent of lending, up from 1.08 percent three months earlier. [From here]
FTSE Outlook
The top of the 10 day Raff is at 6740, while the Bianca channels show 6719 and 6730. It is distinctly possible that if the support area of 6575 holds for the moment we will get a rise to this level, though I think there we might see a bit of a dip. the balls is really in the bulls court so its up to them at the moment, as if 6575 breaks then I think we could dip quite far (the bottom of the 50 day Bianca is down at 6100), as that would cement a break of the bottom of the Bianca channels (6635 and 6606 today).
Initial resistance today is 6655, Fridays high, with the 6670/80 area above that. Looking at the 30minute chart there is a pretty decent rising channel, though we are testing the bottom of it as I write so the bulls will need to be quick out the blocks today with a quick rise to the pivot at 6639 and then push on. The main levels that I am expecting to see today are resistance at the pivot 6639 with 6655 above, and support at the bottom of the 20 day Bianca 6603, 6575 below. Choppy Monday anyone?!