29th August 2019
- Sterling wipes away days of gains on fears of Westminster shutdown
- Weaker pound keeps FTSE afloat as recession fears drag European markets down
- US yield curve inversion deepens as investors flee from global risk
The FTSE 100 closed a respectable 0.54pc up, after a session in which it’s fair to say it had to fight for every inch. We got a double top at the bell at 7134 after the drop down initially to the 7070 support area once again. The energy titans of BP and Shell can be credited with the heavy lifting, but there was some decent weight coming from pharma stocks and supermarkets as well.
Negotiations in Italy are ongoing, but it is likely that President Sergio Mattarelli will grant Five Star and the Democratic Party more time if he believes they can make a coalition happen. If not, we’ll be headed for fresh elections, and that will not be pretty for Italian stocks — especially its ailing banks.
The pound suffered one of its sharpest tumbles of the year on Wednesday as City analysts warned that Boris Johnson’s plan to suspend Parliament will send the currency even lower in the coming weeks. Investors rushed for protection from sudden swings in sterling after the prime minister asked the Queen to suspend Parliament for five weeks, cutting the time MPs will have to block a no-deal Brexit.
Surging fears of a disorderly departure from the EU knocked sterling as much as 1.1pc against the dollar to $1.2157, wiping out last week’s tentative gains, before regaining some ground above $1.22. It slipped back below the €1.10 mark against the euro, enduring one of its worst intra-day drops this year. The setback sent the pound sliding back towards the multi-year lows reached earlier this month.
Asian stocks were muted as the world waits on new developments in the increasingly unpredictable Sino-American trade war. U.S. stocks closed near session highs Wednesday amid light trading. Futures nudged higher in Tokyo and Hong Kong, and dipped in Sydney. The S&P 500 Index climbed on below average volume as a rally in oil pushed energy shares higher, and while the dollar strengthened to a nine-month high, Asian currencies were little changed after Treasury Secretary Steven Mnuchin said the U.S. doesn’t intend to intervene on the dollar for now. Meanwhile, the bond rally continues unabated, with the yield on 30-year U.S. Treasuries sinking to a record low of 1.90%. A bigger-than-expected drop in American crude inventories sparked oil gains, strengthened by Iran when they all but ruled out a U.S. meeting.
U.K. Parliament Suspended
The chances of British Prime Minister Boris Johnson coming good on his ambitious promise to fast-track Brexit just started looking much better. In another dramatic turn of events, the Queen granted the new Prime Minister permission to suspend Parliament on September 12th, effectively giving Johnson invaluable time to return with a new legislative program a month later. That’s set the clock running for his opponents to thwart him — they only have two weeks to craft a law to stop Britain leaving the EU on Oct. 31 without a deal. The question now: Can they do it in time?
FTSE 100 Trading Signals, Forecast and Prediction
Yesterday saw us mostly remain in the 7070 to 7120 range, though the bulls did try to break out above but failed at 7133, while the bears tried but failed at 7050. For today we may well see a similar pattern to yesterday with a dip and rise again. We got the close above 7100 yesterday so there is a bit more strength creeping in, but the bulls will need to break above 7150 today to start turning the momentum properly. Otherwise a drop down from there to sub 7100 looks likely again. We still have the untested daily resistance at 7218 showing so a rally towards this area still looks possible.
The 2 hour chart is still bullish, and the 7070 support levels from that have held the previous two sessions. As a result the coral may well shortly go green, with support at 7080.
If the bears break below 7080 then a retest of yesterday lows at 7050 is pretty likely, with the daily support at 7010 below that. If the bulls can’t keep the momentum going then ultimately we may well see a test of the 6950 level. That said I am expecting a dip and rise to play out again today, however we may well have some curve balls from the Brexit news, and also cable. Talking of cable, the bounce was scuppered yesterday and the bulls need to hold above the 12250 level to get that bullish again.
I am starting to feel a bit more bullish, but cautious. May well get a September rally….
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