Good morning, yesterday played out nicely in the end though the second leg up stalled at 6808 again, with the FOMOC report revealing that weaker data will not interrupt tapering. Or so they say at the moment anyway. It feel like the worm of turning and we are about to start another down leg, today and tomorrow I think. talk of deflation is growing a bit stronger, possibly across the whole euro zone which obviously isn’t ideal, while concerns above China economic state continue, as you can see from the general gist of the Bloomberg news below. there was an interesting program on the other day on BBC2 about China which is worth a watch on iPlayer if you can. It was called “This World – how China fooled the World”.
Yesterday’s support level of 6752 is looking weaker now, with overnight testing and a dip below, the 200ema at 6739 could offer support (6703 after that) and the bulls will need to get prices above 6810 to target 6835 and 6860.
Asia Overnight from Bloomberg
Asian stocks fell with commodities and Australia’s dollar weakened as a private index on China’s manufacturing dropped to a seven-month low. South Korea’s won led emerging-market currencies lower and Japanese bonds rallied.
The MSCI Asia Pacific Index slid 1.2 percent by 2:14 p.m. in Tokyo. Standard & Poor’s 500 Index (SPX) futures lost 0.3 percent and FTSE 100 Index contracts slipped 0.7 percent. A measure of Chinese shares in Hong Kong decreased 0.7 percent and the S&P GSCI Index of 24 commodities declined 0.4 percent. Treasuries rebounded from the biggest drop in a week and Japan’s five-year yield sank to a 10-month low. The Aussie retreated 0.6 percent and the won weakened the most in three weeks.
A preliminary February purchasing managers’ gauge from HSBC Holdings Plc and Markit Economics fell to 48.3, signaling a second month of contraction for Chinese manufacturing and missing an economists’ estimate for 49.5. The yen gained after Japan’s trade deficit widened to a record in January, as surging import costs weigh on Prime Minister Shinzo Abe’s efforts to renew growth. The International Monetary Fund warned of risks to world growth before data today that may show U.S. jobless claims fell and a gauge of leading indicators rose.
“People globally underestimate the downside risk to the Chinese economy,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, said in a Bloomberg Television interview. “The economy is not just slowing but there’s a lot of financial risks here. The chance of a crisis is rising and very real.”
Yuan Weakens
China’s offshore yuan weakened 0.2 percent to 6.0557 per dollar, the biggest drop since May, data compiled by Bloomberg show. The onshore rate in Shanghai slid 0.1 percent to 6.0831, set for a two-day loss of 0.25 percent that would be the biggest loss since June, according to China Foreign Exchange Trade System prices.
The declines were “triggering a lot of stop losses,” according to Andy Ji, Singapore-based FX strategist and China economist at Commonwealth Bank of Australia.
“Today’s data shows smaller enterprises continue to struggle and China’s recovery is very fragile,” said Ji. “The CNH reacted in a more pronounced move than the onshore yuan because it is not confined to any trading band. The onshore yuan is anchored by PBOC intervention.”
Emerging Turmoil
Risks of prolonged market turmoil in emerging markets and of deflation in the euro area are threatening the world’s improved economic prospects, IMF staff wrote in a note prepared for central bankers and finance ministers from the Group of 20. Ministers meet this weekend in Sydney.
FTSE Outlook
The daily pivot is 6789 so with prices back below that the short term outlook is bearish. I mentioned above that I expect the next 2 sessions to be bearish as I think we are currently in a small wave down (15780/15800 Dow is looking good) so a bearish stance at the moment for me. With today’s pivot looking like a good shorting spot. Should the reverse be true and the bulls can break that and the 6808 level that acted as resistance yesterday then 6835 and 6860 are possible upside targets.
The 30 minute EMAs are currently bearish (10 below the 25) which is why I am expecting that little dip, but with the 10 day Bianca channel bottom at 6752 it might be short lived, at least initially. I think the FTSE will try to be bullish this morning then be dragged down by the US this afternoon.