Good morning. A nice gentle morning with a decent short off the 6722 followed by a long off the 6690, before all hell broke lose at 12:30 with a decline to 6620. Having found a bit of support there thats the line in the sand though I expect we will see the bottom of the 10 day Bianca at 6599. Usual story for the fall, concern over interest rate rises was the main thing it was blamed on, but its probably just a flushing exercise before a climb in October and for the year end. I don’t think that there was one specific reason for the fall yesterday.
Asia Overnight from Bloomberg
Asian stocks fell, with the regional index heading for a third straight weekly loss, after the Standard & Poor’s 500 Index dropped the most in almost two months. The dollar rallied with sovereign bonds as the cost of insuring debt against default climbed.
The MSCI Asia Pacific Index (MXAP) lost 1.1 percent by 2:29 p.m. in Tokyo, as the Topix index dropped 1.1 percent from its highest close since June 2008. Indonesian stocks plunged the most in four months after the country scrapped direct regional elections. S&P 500 futures added 0.1 percent after the gauge slumped 1.6 percent. Australian 10-year bond yields fell nine basis points after U.S. Treasuries jumped the most in six weeks. The yen fell 0.3 percent and a gauge of Asian credit-default swaps headed for its biggest jump in eight weeks.
About $1.42 trillion has been wiped from the value of global shares this month amid concern Chinese economic growth is slowing and that U.S. interest rates may rise sooner than some investors are expecting. Japan’s inflation slowed more than estimated in August, highlighting the magnitude of the task facing Bank of Japan Governor Haruhiko Kuroda in his bid to spur inflation. Consumer-confidence data are due in the U.S., France and Germany.
“With investors scratching their heads over a catalyst for the decline, many are wondering whether this may or may not be the start of a bigger correction,” Andrew Wilkinson, Greenwich, Connecticut-based chief market analyst at Interactive Brokers LLC, said in an e-mail. It “reminds us just how absent volatility has been during the rally.”
World Index
The Chicago Board Options Exchange Volatility Index (VIX), known as the VIX, jumped 18 percent to 15.64 yesterday, the most since July. That’s 16 percent higher than its average this year. The Nikkei Stock Average Volatility Index climbed 1.4 percent.
The MSCI All Country World Index is on course for a 3.2 percent decline in September, the biggest drop since January. All 10 industry groups on the Asia-Pacific gauge dropped today, led by materials producers and consumer-discretionary firms. The measure is heading for a 1.7 percent weekly loss and the lowest close since May 30.
South Korea’s Kospi index dropped 0.4 percent, while the S&P/ASX 200 Index fell 1.2 percent in Sydney. The Nikkei 225 Stock Average, which yesterday closed at the highest level since November 2007, retreated 0.9 percent in Tokyo today.
Hong Kong’s Hang Seng Index dropped 0.5 percent and is heading for its biggest weekly losssince March, which was also the last time the measure fell for three straight weeks. A gauge of Chinese shares in the city retreated 0.5 percent, while the Shanghai Composite Index was slipped 0.2 percent.
Loss Streak
The S&P 500 reached an all-time high on Sept. 18, and trades at 17.8 times the reported earnings of its companies, near the highest level since 2010. While the gauge is down 1.9 percent for the month, paring a gain for the quarter, it has not had a four-day losing streak this year and has not fallen more than 10 percent in three years.
Data yesterday showed American factories received more orders for machinery, communications gear and electrical equipment in August as an improving economy gave companies the confidence to expand. The number of applications for unemployment benefits increased less than forecast last week.
A report today will show gross domestic product grew 4.6 percent in the second quarter, more than the previous estimate of 4.2 percent released Aug. 28, according to a Bloomberg survey of analysts.
FTSE Outlook
Todays pivot is 6662.5 and I expect us to climb to that initially. From there its quite possible we get further downside, as the bulls need to recover above 6725 to invalidate the decline – as such I think a dip to the bottom of the 10 day Bianca channel at 6599 is the more likely scenario. That said, as mentioned above I do think that they dip is going to be short-lived and we will see a rise again next month. I don’t think the bulls are out of the picture just yet. That said, should 6600 break then the next supports are the bottom of the Raffs at 6577, then 6547, with a possible 6475 (would become likely if 6600 breaks).
Anyway, today…. If that rise breaks through the pivot then the the main resistance levels are 6725, 6760, 6801, these latter two begin the top of the Bianca channels. Might be a big ask for either of them today though! As its Friday I’ll mostly be on the sidelines, but will venture a short at the pivot and a long at 6606.