Good morning, hope you had a good weekend. If anyone kept that short order for 6590 on Friday then it actually made a few points with a drop from 6600 to 6566 around mid-afternoon, but the drop was short lived, with the bulls taking things back up. There hasn’t been much bearishness off 6600 as yet really so it appears the bulls are in control. Fairly quiet on the financial news front over the weekend – Barclays have lost customer records, long term fixed rate mortgages are creeping up and the Eurozone banks face a £42bn black hole were just some of the headlines I read. Of course, the big news from Friday was NFP, coming in below expectation. Despite the initial dip, market soon shrugged that off, probably looking forward to QE being ramped back up as that’s 2 poor figures in a row Decembers was shocking!). I don’t think they will taper again for a couple of months anyway to let things settle down.
Asia Overnight from Bloomberg
Asian stocks rose, led by a jump in mainland Chinese shares, as the regional index headed for its longest streak of daily gains since December. Wheat slid and the South Korean won advanced.
Speculation that Lunar New Year sales were strong boosted mainland Chinese equity indexes, while losses by bank and casino shares restrained gains in Hong Kong after the central bank said investors will have to tolerate further volatility in money-market rates. Federal Reserve chairman Janet Yellen delivers her first semi-annual monetary-policy testimony tomorrow as markets weigh how mixed economic reports last week will affect the central bank’s plan for reducing stimulus.
“Things have bounced back but there’re not a lot of momentum behind that,” Matthew Sherwood, who helps manage about $25 billion as the Sydney-based head of investment markets research at Perpetual Ltd., said by phone. “Yellen is probably going to pause on tapering within the next few meetings following recent poor labor market reports. There’s still a lot of question marks on the Japanese economy. China’s economic growth is going to moderate as the government tries to tighten liquidity.”
China Crunch
The U.S. added 113,000 jobs in January, a Feb. 7 report showed, trailing the median estimate of 180,000 in a Bloomberg survey. The jobless rate dropped to 6.6 percent, the lowest since October 2008. The Fed said last month it will press on with a second reduction to its monthly bond buying, by $10 billion to $65 billion, citing an improvement in the labor market.
China’s central bank signaled volatility in money-market interest rates will persist and borrowing costs will rise, underscoring the risk of defaults that could weigh on confidence and drag down growth. One-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, added five basis points to 4.85 percent.
“When the valve of liquidity starts to tame and curb excessive credit expansion, money-market rates, or the cost of liquidity, will reflect that,” the People’s Bank of China said in its fourth-quarter monetary policy report.
FTSE Outlook
There is a bit of strength underlying the FTSE presently, and as long as 6550 area holds then it looks like we might test 6640/50, possibly even 6730. 6642 is the 50% retrace of the most recent high to the most recent low. 6695 is the 63% area – so these levels are ones to watch on the bigger picture.
For today, is the bulls can break and hold above 6597 then we should reach that 6640/55 area. A possible short at 6650, stop 6566 should be good for this. Initially there is a very good 10 minute channel in play with the channel bottom at 6687ish, resistance at 640, but for that channel to work, it needs to break through 6597 (the red line). For the moment, it has bullish momentum at least till 6650, so I would be looking to buy the dips for the moment, around the pivot at 6565, and possibly 6550 (stops below 6545). The slight spanner in the works for the bulls is the top of the 20 day Raff channel, though it does look like they are trying to break through it. Today will be fairly key for the bulls, as the Bianca channels for 10 and 20 day are both at 6590. I expect therefore we may see an initial dip, despite prices holding up since Friday.
I am thinking a dip to the daily pivot at 6565 then a rise, possibly as far as 6640/50.