Good morning. Volatility is the name of the game at the moment isn’t it. Fortunately that short at 6576 came good and hit the target quite quickly at the 6515 area. Felt risky at the time and did look a bit dodgy for a while, hence I mentioned it via email rather than SMS. We then got the bounce off 6508 where we had the bottom of the channel on the 10 min. There was a mild panic leading up to the Apple results which saw another dip to set up a double bottom overnight, and we are now back at 6550 as I write this. Its certainly tricky while we wait we wait for the Fed decision tomorrow on whether the next taper will or won’t happen (probably the latter) this month. It is going to be hard for them to wind it down without sending large ripples throughout the global markets as withdrawing too early will undo all the effort that it was supposed to sort during the actual tapering!
Asia Overnight from Bloomberg
Asian stocks fell, with the regional benchmark index on course to drop for a fourth day, amid concern over the Federal Reserve’s plan to cut stimulus and as profit growth at China’s industrial companies slowed.
The MSCI Asia Pacific Index fell 0.3 percent to 134.37 as of 3:14 p.m. in Tokyo, after rising 0.2 percent. The regional gauge dropped yesterday by the most since June as part of a global slump sparked by weaker-than-expected data from China and a sell-off in emerging-market currencies. India unexpectedly raised interest rates today, while Fed policy makers start a two-day meeting.
“Investors can’t move much until they see the policy statement of the Federal Open Market Committee meeting on Jan. 28-29 and the market’s reaction to it,” said Toshihiko Matsuno, a strategist at SMBC Friend Securities Co., a unit of Japan’s second-largest lender. “The abrupt changes in developing markets are showing signs of settling down and the yen has stabilized. That should start buying back gradually.”
Investor Challenge
Profit at China’s industrial companies increased 6 percent in December from a year earlier, after rising 9.7 percent in the previous month, the National Bureau of Statistics said today.
“China will continue to spook investors,” Toby Lawson, head of futures, options and cash equities trading for Asia-Pacific at Newedge Group SA in Sydney, said by telephone. “Investors just need to ride out this volatility until we find a bottom.”
The Asia-Pacific equity gauge is headed for its biggest monthly decline since May after a private gauge of China’s manufacturing dropped to a six-month low in January, adding to signs growth is slowing in the world’s second-largest economy. Shares on the measure traded at 12.7 times estimated earnings yesterday, compared with a multiple of 15.1 for the Standard & Poor’s 500 Index and 13.6 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.
U.S. Futures
Futures on the S&P 500 added 0.3 percent today. The measure declined 0.5 percent yesterday. Federal Reserve officials have been scrutinizing U.S. economic data to determine the timing and pace of reductions to asset purchases. The central bank, which starts a two-day meeting today, decided at its December gathering to begin cutting its monthly bond buying by $10 billion to $75 billion.
“The fear around another Fed taper and the effects on emerging markets seem to be based more on the effect it will have on profits made over the past year than a genuine fear of credit squeezes,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., wrote in an e-mail to clients today.
Apple
Shares of Apple sank about 9 percent in after-market trading in the U.S. The technology company forecast second-quarter sales of $42 billion to $44 billion, trailing the median analyst estimate of $46.1 billion. Sales of iPhones were also below projections.
FTSE Outlook
I feel that tomorrows Fed announcement will say no tapering just now, keep asset purchase at $75bn per month for Q1, equities rise, gold drops. Personally I wouldn’t have tapered at all yet until a recovery was more solid, but then that’s just me. Once you start down the road of propping things up its very hard to withdraw that. its quite interesting that the media has downplayed the recent falls. The BBC usually love a drop in shares as they can get their big red arrows out, and wheel Robert Peston out too. Keeping a lid on it looks like they are trying not to spook Joe Public to keep the fragile recovery alive. The media would also have egg on their faces (no surprise there) as most of January they have all been saying pile into shares!
Anyway, as I mentioned in one of yesterday’s emails, the weekly chart shows support at 6480, a level that might well hold if seen. There is also support at 6500. Based on the strong bounce off that area twice yesterday (one in hours, the other out of hours) I think we will see a bounce today. As mentioned above, with gold falling quite sharply that does send out a pre cursory warning shot that equities might rise. Who knows, they may even start to price in a no taper decision for tomorrow. 6592 is the resistance level to watch which could lead to 6635 where we have a daily ProTrend line, as well as the 10 ema at 6671.
A break below 6539 and I expect that we will see that 6497 level, then 6470/80 after that.
Initially today we have the 30 minute channel in play still which worked well yesterday. Today’s pivot is 6585 and I think this early morning bounce will reach that, then a dip to the 6537 ProTrend support line, another rise to give us a flat to slightly bullish day, though we may see some declines going into tomorrows Fed announcement. It will certainly be choppy at the time the announcement is due anyway.