Good morning. Yesterday failed to break the resistance level at 6570 so we never saw the slightly higher levels mentioned. The risky long off the 6520 area send round in the afternoon came good for a fairly decent 30ish point bounce in the end, before the bears came back at it. Overnight we topped and dropped from the same level – 6545ish. I mentioned yesterday that I don’t think the Santa Rally is kicking in just yet and it certainly feels that way, the bulls are making hard work of it! The S&P is holding up above 1800 for the moment and bounced well off that 1802 level as well. it was quite fortunate that the S&P, Dax and FTSE all hit support areas at almost the same time yesterday. Once again tapering was at the forefront of most movements yesterday, off the back of a US debt deal being done.
Asia Overnight from Bloomberg
Asian stocks fell for the first time in three days and precious metals slid as investors weighed the outlook for a paring of Federal Reserve stimulus after American lawmakers unveiled a budget deal. The yen gained versus major peers.
The MSCI Asia Pacific Index declined 0.7 percent as of 2:21 p.m. in Tokyo, with Japan’s Topix (TPX) index retreating 0.5 percent as the yen rose against the euro and the dollar. Gold dropped 0.2 percent, after advancing the most in seven weeks yesterday, and silver slipped. Standard & Poor’s 500 Index futures were little changed, following the gauge’s retreat from a record in New York yesterday. Thailand’s baht rose to a two-week high, while the Indian rupee slid.
Investors are considering the outlook for economic stimulus before next week’s Federal Reserve meeting after a U.S. budget compromise that lawmakers said would ease automatic spending cuts by about $60 billion over two years. India is due to report November imports and exports today, ahead of German data forecast to show stable inflation.
“The taper debate is the sole focus of the market at present,” said Matthew Sherwood, head of investment markets research at Perpetual Ltd., which manages about $25 billion. “A wave of risk aversion has swept through markets.”
Stimulus Reduction
The Federal Open Market Committee may begin reducing an $85 billion-a-month bond buying program at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 survey.
Budget Agreement
The U.S. budget deal, worked out between chief negotiators Senator Patty Murray and Representative Paul Ryan, would set spending at about $1.01 trillion in 2014, higher than the $967 billion required in a 2011 budget accord. The toughest part may be selling it to Congress, where skepticism is emerging in both political parties.
“One of the reasons why Fed tapering was postponed in September was uncertainty over budget talks, so a deal would make the tapering more likely,” said Kengo Suzuki, the Tokyo-based chief currency strategist at Mizuho Securities Co.
FTSE Outlook
Once again the bulls failed to break 6570, though with a couple of daily tests of this area in theory a third test should break through. Assuming the bulls can get the FTSE back up to that level of course! As I write this we are back on the support level of 6520, however, I think that the 30 minute channel that also exists on the FTSE, as with the one on the S&P mentioned above, might be a more favourable play. The EMAs are currently in a bearish pattern, and with the daily pivot at just 6538 the immediate trend is still down. I think if that holds, or at the most a test of 6496, then a rise towards the pivot is possible, and possibly the top of the 10 day Bianca channel at 6565.