Good morning. Despite Fridays afternoon rally the FTSE still ended January fairly weak. Overnight last night we had yet more weakening Chinese data, manufacturing this time. That certainly won’t be buoying up the emerging markets today, who are experiencing a bit of a currency crisis. Friday didn’t pan out quite as expected, with our long faltering at the top of that 10 minute channel we had at 6550ish, then a really big drop, which to be frank I wasn’t expecting from that point. Coupled with the subsequent rally that drop looked overdone, especially when 6460 broke down. Typical Friday really – expect the unexpected! In the live trading room, we felt it was going to bounce, but it was proving quite hard to pick the level – 6460? 6440? 6430? In the end 6420 gave the support (for no obvious reason). Funny day in the end! Despite rallying back above 6500, we have dropped back a bit, and the bulls will be keen to break that 6510 area for further growth.
Asia Overnight from Bloomberg
Asian stocks fell, with Japan’s Nikkei 225 Stock Average extending its slump from its close on the final day of 2013 to 10 percent, after a slowdown in Chinese manufacturing growth added to concern the global economic recovery is faltering.
The MSCI Asia Pacific Index lost 1.1 percent to 133.30 at 3:11 p.m. in Tokyo, heading for the lowest close since Sept. 5. More than three shares fell for each that rose. The measure dropped 4.6 percent in January for its third straight monthly decline. A global rout wiped about $1.9 trillion from the value of listed equities last month, spurred by weaker-than-expected economic data from China and a selloff in emerging-market currencies.
“We’re seeing the contagion coming through,” said Steve Brice, chief investment strategist at Standard Chartered Plc in Singapore. “There certainly isn’t going to be a crisis but the short-term weakness looks likely to continue for now.”
Markets in China, Hong Kong, Malaysia, Taiwan and Vietnam are closed today amid the Chinese New Year holidays.
Of the 190 companies on the MSCI Asia Pacific Index that have reported earnings since the beginning of January and for which estimates are available, half missed analyst estimates for profit, according to data compiled by Bloomberg.
China Data
China’s Purchasing Managers’ Index was at 50.5, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Feb. 1 in Beijing. That matched the median estimate of analysts surveyed by Bloomberg News and compared with December’s 51 reading. Numbers above 50 signal expansion.
The survey showed jobs and export orders shrinking, amplifying risks of a deeper slowdown as Communist Party leaders clamp down on the $6 trillion shadow-banking industry and interbank borrowing costs rise. A separate private manufacturing gauge released by HSBC Holdings Plc and Markit Economics on Jan. 30 pointed to the first contraction in six months.
Futures on the S&P 500 were little changed. The gauge last week completed a third straight loss, the longest slump since 2012, after the Fed cut stimulus even as a rout in emerging markets spurred concern about the global economy.
FTSE Outlook
So, Dax and S&P are both looking primed for a dip then rise today, Dax to 9170 and S&P to 1774 (even Dow for the double bottom at 15600), so its probably prudent to say that the FTSE will follow similar lines. Chinese data out last night won’t be ideal for emerging markets, who will be reeling still from last week’s pasting. Upside is probably limited to 6533 initially, being the top of the 10 day Bianca channel which seems to be playing out pretty well at the moment offering the resistance and support areas. Support being 6364 today so pretty low. The 20 day has support at 6426 which could be a good bounce area, coinciding with Fridays low also. Today’s pivot is 6493 so I expect that to be initial resistance, possibly 6510. I am still mindful of the weekly chart where we had the drop to 6200 pencilled in from December last year, a level that could be seen if the 6420 area breaks.
If the bulls were able to break 6510 then 6533 and 6630 are possible upside targets.
As with the others I think a dip and rise scenario today.