Good morning. The long off the pivot yesterday didn’t work with that rather steep decline yesterday but the FTSE found support at the bottom of the 20 day Raff and coral area at 6760 to set up another V shaped day. Been a regular pattern recently as the UK is spooked in the morning over Scotland then dragged back up by the US in the afternoon, which isn’t that bothered about Scotland! It was also supported by Chinese stimulus. Latest poll shows the No slightly ahead 52 to 48. Still a close call! Today should see some mild bull I think, but going to be jittery still with the vote tomorrow. Support is 6794, with pivot below that at 6781.5.
Asia Overnight from Bloomberg
Asian stocks rose, halting the regional index’s longest slump in 12 years, while industrial metals climbed and Chinese bonds rallied as the country’s central bank boosted stimulus. The dollar rose before the Federal Reserve reviews interest rates.
The MSCI Asia Pacific Index added 0.3 percent by 1:28 p.m. in Tokyo, rising for the first time in 10 days as a gauge of Chinese shares in Hong Kong jumped 1.7 percent. China’s five-year bonds gained the most in three months and the cost of insuring Asian debt against default slid a second day. Copper and nickel advanced at least 0.5 percent in London. Standard & Poor’s 500 Indexfutures retreated 0.1 percent and the Bloomberg Dollar Spot Index climbed 0.1 percent after its biggest drop in three months yesterday.
China is injecting 500 billion yuan ($81 billion) into the nation’s largest banks, according to a government official familiar with the matter, signaling the deepest concern yet with the country’s economic slowdown. Speculation the Fed will today maintain its pledge to keep rates low for a “considerable time” after ending asset purchases helped send the dollar lower yesterday. The euro-area and U.S. report inflation today, while Thailand reviews its key rates.
China’s “authorities want to make sure they will achieve minimum, acceptable growth by providing more liquidity to banks, and I think the market will view that positively,” Tim Schroeders, a portfolio manager who helps oversee $1 billion in equities at Pengana Capital Ltd. in Melbourne, said by phone. “Given the weak data, particularly over the weekend, some sort of stimulus measures were in the wind, but to see this occur overnight, I’d say it’s still a surprise to the market.”
Lending Support
Hong Kong’s Hang Seng Index advanced 1.1 percent for its first gain in nine days, while the Hang Seng China Enterprises Index is rebounding after its biggest five-day retreat since a credit crunch in June last year. The Shanghai Composite Index (SHCOMP) slipped 0.2 percent after its biggest drop in six months yesterday.
The People’s Bank of China will funnel 100 billion yuan each to the five biggest banks for a three-month period, said the official, who asked not to be identified because the measure hasn’t been formally announced. The credit expansion builds on targeted measures to shore up growth while stopping short of broad-based monetary and fiscal stimulus that increases dangers from bad loans.
China joins the European Central Bank in adding liquidity, while the U.S. scales back stimulus. Data at the weekend showed Chinese factory output grew at the slowest pace since the global financial crisis and retail sales expanded less than expected.
More Easing
One-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, declined as much as seven basis points to a three-month low of 3.46 percent in Shanghai, data compiled by Bloomberg show. The yield on government debt due April 2019 climbed four basis points, the most since June 10, and the yuan gained for the first time in five days.
The PBOC’s lending facility “will iron out the short-term bumps in liquidity,” Hao Hong, a Hong Kong-based strategist at Bocom International Holdings Co., said in a phone interview. “There is a need for liquidity injections because there are IPOs coming up that can tie up 800 billion to 1 trillion yuan at a time. Plus you have cash demand for the Golden Week holiday and quarter-end demand from banks to meet regulatory requirements.”
Australia’s S&P/ASX 200 Index (AS51) slipped 0.7 percent, while the local dollar weakened 0.3 percent to 90.71 U.S. cents after surging 0.7 percent on the China-stimulus report. Japan’s Nikkei 225 Stock Average climbed 0.1 percent after dropping for the first time since Sept. 5 yesterday, while the broader Topix index was little changed.
Timing Issue
Wall Street Journal reporter Jon Hilsenrath said in a Web video that he thinks Fed policy makers will maintain their pledge to keep benchmark overnight rates low for a “considerable time” after the bank ends its asset purchases known as quantitative easing.
A Bloomberg News survey of economists published yesterday was almost evenly divided on whether the Fed will retain the reference to rates staying low for a “considerable time” today. Fifty three percent said the phrase would stay in the Fed’s statement. Fed Chair Janet Yellen will speak to reporters after the release.
The pound was little changed at $1.6286 after yesterday’s 0.3 percent advance. The Bank of England releases minutes of its last meeting today and Scotland will vote tomorrow on whether to break from the U.K.
FTSE Outlook
Today might see some optimistic buying ahead of the vote tomorrow, levelling off at 6840 on anticipation of a No vote win. Polls only showing a slender lead for the No vote at the moment, which I think has stopped the FTSE being able to rise too far over the past couple of weeks (I had expected it to be around 6900 before the vote, so unless it tears up 100 today I don’t think we will see that level prior). However, if the No vote wins then we might soon be testing those all time highs again, to coincide with another run on the S&P to 2007.
For today I have put the 6794 area holding initially (back test of the 10 day Bianca channel top), though if that breaks there is further support at the daily pivot, 6782, then the bottom of the 20 day Bianca at 6777. Worst case for the bulls is a drop to the bottom of the 20 day raff at 6740.
Initial resistance is 6820 though it dropped off this level last night already, then 6830 where there are the PRT lines and top of that 30min channel, and then 6843 where we have a fib level.