Good morning. Well there we go, it was in fact 1.1trillion, fed in at 60bn Euros a month. I won’t reiterate all the details suffice to say that markets reacted favourably in the end, with the FTSE breaking through 6800. Some good shorts were had off that 6795 resistance area though at the time of the press conference! We have moved above the 20 and 50 day Bianca channels but the top of the 10 day is at 6863 (short time frame trend is up), with he 20 day Raff at 6930 – not far off the all time highs. We would appear to be in a bit of a growth phase at the moment unless some world event throws a spanner in the works.
Asia Overnight from Bloomberg
China’s stocks rose, sending the benchmark index toward the longest stretch of weekly gains in eight years, as an unexpected gain in a manufacturing gauge signaled the world’s second-largest economy is stabilizing.
PetroChina Co. and Jiangxi Copper Co. led a rally for energy and material producers, advancing at least 1.6 percent. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.8 in January, exceeding the median estimate of 49.5 in a Bloomberg survey. Citic Securities Co. and Haitong Securities Co., the biggest listed brokerages, surged more than 3 percent. Industrial & Commercial Bank of China Ltd. climbed to a one-week high.
The Shanghai Composite Index (SHCOMP) rose for a fourth day, adding 1.8 percent to 3,404.04 at 1:05 p.m. and wiping out this week’s loss. Along with data showing industrial output and retail sales improved in December, the first reading of the economy’s momentum in January may alleviate concerns of a deeper downturn.
“The market seems to continue stabilizing with Shanghai opening today slightly up driven by strong performance in the brokerage and banking sectors,” said Gerry Alfonso, a China equity sales and trading director at Shenyin & Wanguo Securities Co. The data were “above the market expectation,” he said.
The CSI 300 Index climbed 1.5 percent, while Hong Kong’s Hang Seng China Enterprises Index (HSCEI) advanced 1.8 percent and the Hang Seng Index added 1.3 percent. The Bloomberg China-US Equity Index rose 1.4 percent yesterday, spurred by the European Central Bank’s stimulus plan.
Volatile Week
Mainland stocks have been volatile this week, with the Shanghai gauge plunging 7.7 percent on Monday in reaction to new margin trading rules before rebounding over the subsequent four days after the securities regulator said it wasn’t trying to curb equity trading through the regulations.
The Shanghai gauge has gained 65 percent over the past year, making it the best performer among 93 global indexes tracked by Bloomberg. The index is valued at 12.7 times 12-month projected earnings, compared with a multiple of 8.2 for the H-shares gauge.
Gauges of financial, energy and material shares in the CSI 300 climbed at least 0.9 percent for the biggest gains among 10 industry groups. PetroChina, the biggest oil company, surged 3.1 percent. China Petroleum & Chemical Corp. advanced 1.7 percent. China Molybdenum Co. jumped 4.6 percent.
Financials Rally
The manufacturing gauge recovered lost ground in January, suggesting stimulus measures have helped stabilize the world’s second-largest economy. The Flash PMI number also exceeded December’s 49.6 figure. Numbers below 50 indicate contraction.
Sealand Securities Co. rallied 9.3 percent to lead gains for financial shares. China Life Insurance Co. jumped 4.5 percent. Huaxia Bank Co. advanced 2.6 percent.
“Expectations are high that the PBOC will cut the reserve ratio before the holiday,” said Zhao Bingtong, Shenzhen-based trader at Guosen Securities Co. “That’s why financial shares are strong.” The Chinese New Year holiday starts Feb. 18 and lasts for a week.
Trading volumes in the Shanghai Composite were 12 percent below the 30-day average for this time of day, according to data compiled by Bloomberg. The gauge’s 30-day volatility reached a five-year high this week.
The Shanghai index’s rally has reached a temporary peak amid signs of slowing economic growth and regulatory efforts to curb margin trading, Jian Yi, a Beijing-based partner at Windsor Capital, said in a phone interview yesterday. Stocks will regain momentum later this year as a weaker property market spurs investors to shift money from real estate into equities, he said.
“The market will fluctuate in the first half,” said Jian, whose fund has returned 29 percent in the past six months, ranking ninth out of 210 mainland Chinese hedge funds tracked by Shanghai-based fund researcher Howbuy. “Financial and other blue-chip stocks that have much exposure to margin trading may underperform the benchmark. Investors should reduce holdings of these stocks.” [Ref]
FTSE Outlook
Initial resistance today is the overnight high at 6844, with he top of the 10 day Bianca above that at 6863 – we may see some profit taking at this area before the weekend for those that have held longs this week. Above this level then 6937 come into view and we start talking about all time highs and a possible push for 7000. I expect us to initially continue yesterdays strength with any dips being bought for a rise to the fib pivot and Bianca 10 day area around 6870ish, before a dip back down to that 30 min channel line. If the bears broke through this then a dip down to 6777/60 is possible (daily pivot support), and if the bears broke this then 6710 is on the cards. Not sure that the bears will be that strong today so I expect that level to hold. If we were to break 6760 then that weakness the case for more growth for the moment.