Good morning. Well, what a day yesterday, and fortunately that SMS long at 6621 managed to reach target at 6650, before the bears appeared, and overnight, off the back of the approved airstrikes against Iraq, has dropped 100 points! Its almost as if the market knew at 6650 it needed to reverse…. I think that the summer of 2014 will be remembered for conflict, 100 years after WW1 – Russia/Ukraine, MH17, Middle East & Iraq, Argentina getting shirty with the US (they are suing them in the Haque) and so on. Economically, France is still struggling, Italy is back in recession, the Dax has dropped 10% and the German economy is also struggling. So….be time to go long for the next leg up soon! Be fearful when others are greedy and greedy when others are fearful as Buffet would say…
News does tend to come in waves – one week its all bad, then its good. Might have already just started as China’s shipments increased 14.5% over the past year, with a $47.3bn surplus.
Asia Overnight from Bloomberg
Asian stocks dropped, with the regional benchmark index heading for a seven-week low, as U.S. President Barack Obama authorized air strikes in Iraq.
The MSCI Asia Pacific Index (MXAP) fell 1.4 percent to 144.08 as of 12:46 p.m. in Hong Kong, on course for a 2.5 percent loss this week and the lowest close since June 18. President Obama said he has authorized air strikes to prevent genocide in Iraq. U.S. troops will not be returning to Iraq, he said. The announcement heightened geopolitical risks as Russia retaliated against U.S. and European sanctions by banning some western food imports, with concern that President Vladimir Putin could ratchet up tensions by invading Ukraine.
“U.S. air strikes in Iraq could stir up more tensions in the region,” Desmond Chua, a strategist at CMC Markets in Singapore. “The geopolitical situation seems to be getting rougher every day. Given these high-risk events, investors should probably stay on the sidelines.”
Futures on the Standard & Poor’s 500 Index fell 0.5 percent today. The measure dropped 0.6 percent yesterday and the Dow Jones Industrial Average slid to the lowest level since April as the Ukraine conflict offset better-than-estimated earnings and a drop in American jobless claims.
European Impact
European Central Bank President Mario Draghi said the risks to a recovery from conflicts including that in Ukraine are increasing. Headwinds facing the 18-nation euro area’s recovery are intensifying after Italy slipped back into recession and the standoff between Russia and the U.S. and its allies escalated into the worst such conflict since the Cold War.
“I’m concerned that the economic sanctions Russia has placed will have an impact on European growth,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $148 billion. “But economic data from the U.S. will continue to improve and benefit Asian shares, which is our medium-term view.”
Draghi has said large-scale asset purchases are an option for dealing with a severe economic shock, leaving investors seeking clarification on what the trigger could be.
China
China’s Shanghai Composite Index added 0.3 percent. A report today showed China’s export growth unexpectedly accelerated in July and the trade surplus surged to a record as imports fell.
Overseas shipments increased 14.5 percent from a year earlier, the Beijing-based customs administration said today, compared with the median projection of 7 percent in a Bloomberg News survey. Imports dropped 1.6 percent, leaving a trade surplus of $47.3 billion.
China Momentum
“These are very good numbers,” Nader Naeimi, the head of dynamic asset allocation at AMP Capital Investors Ltd. in Sydney, which manages about $131 billion, said by phone. “China’s economy is picking up momentum and it looks sustainable. Chinese equities are still attractively valued, offering investors a good buying opportunity.”
FTSE Outlook
Sentiment and news – makes for a very hard trading situation. Ideally a sidelines dray today while the dust settles, and it looks like the S&P will get that 1888 after all. Where does that put the FTSE? Probably at 6450 – I am flagging that as a decent support area now, if this decline continues. For today, we have the daily pivot at 6612 – will be brave bulls buying it at the open though. On the other hand, the market likes confirmed news rather than rumours, but the worry is that the airstrikes will stoke tensions in the whole area (Middle East). Russia is still gunning for an invasion of Ukraine, sticking 2 fingers up to the West over the sanctions.
Initial support today is 6535 then 6523. The latter is also showing as a fairly major PRT support area as well – Maybe a very brave long here with a tight 12 point stop for a few points, probably to 6550 to retest the bottom of the 30 min channel.We are below all the Bianca channels currently, though the 10 day bottom is only 6562 so not that far away. Usually when we break out of these channels it drops a bit further then snaps back to reverse the move. As mentioned, I’m watching for the S&P at 1888 now before any major bullishness to kick in, most likely next week rather than today as I don’t think traders will want large positions over this weekend. That said at 6550, we are at the bottom of the 20 day Raff currently, as well as a rising daily PRT channel at 6548. Think it will be brave buyers at the open though! To revers the bearish sentiment and trend the market needs to reach and break 6639, which would then open 6700 up as a target.