Good morning. Well Friday was a bit volatile, it broke the first 2 supports that we had pencilled in but the 6622 area was very nearly hit and also held well, seeing a rebound to 6700 before dropping off a little. US jobs news on Friday was average, a slightly better than forecast increase; whilst over the weekend it was announced that the Portuguese bank in trouble will be bailed out. I wouldn’t be surprised to see a bit off bull early this week before more downside to lower levels. We are not far off the bottom of the 10 day Bianca channel, being 6663 for today, the 20 day at 6682 and with the pivot at 6678 there could be support around this area.
Asia Overnight from Bloomberg
Asian stocks swung between gains and losses as investors weighed a smaller-than-forecast increase in U.S. payrolls and the bailout of a Portuguese bank.
The MSCI Asia Pacific Index gained less than 0.1 percent to 147.76 as of 12:34 p.m. in Tokyo after falling as much as 0.3 percent. The measure declined 0.8 percent on Aug. 1, dragging the gauge to its first weekly drop in three weeks.
“The market is increasingly poised to get a correction,” said Koichi Kurose, Tokyo-based chief market strategist at Resona Bank Ltd. “It’s hard for investors to interpret the implications of European bailouts, and so the Asian market tends to go down with the U.S. market. The U.S. jobs data haven’t changed much, meaning that its economy isn’t picking up fast.”
Hong Kong’s Hang Seng Index added 0.4 percent and the Hang Seng China Enterprises Index of mainland shares traded in the city advanced 0.9 percent. The Shanghai Composite Index gained 1.1 percent. Taiwan’s Taiex Index added 0.5 percent and Singapore’s Straits Times Index declined 0.5 percent.
Japan’s Topix (TPX) index and South Korea’s Kospi index both fell 0.1 percent. Australia’s S&P/ASX 200 Index slipped 0.3 percent, while New Zealand’s NZX 50 Index lost 0.4 percent.
Bank Bailout
Portugal’s central bank took control of Banco Espirito Santo SA in a 4.9 billion-euro ($6.6 billion) bailout that will leave junior bondholders with losses. Banco Espirito Santo has been forced to take government money after regulators uncovered potential losses on loans to other companies tied to Portugal’s Espirito Santo family and ordered the lender to raise capital. Bank of Portugal Governor Carlos Costa had sought to find private investors to inject the cash, and said government funds would only be used as a last resort.
Futures on the Standard & Poor’s 500 Index added 0.4 percent today. The measure slid 0.3 percent on Aug. 1 as investors weighed concerns over Argentina and Portugal against jobs data that signaled the Federal Reserve may have leeway to keep interest rates low.
Data last week showed U.S. employers added more than 200,000 jobs for a sixth straight month in July, the longest such period of gains since 1997. The 209,000 advance fell short of the 230,000 increase forecast by economists. The jobless rate climbed to 6.2 percent from 6.1 percent in June as more people entered the labor force.
China Policy
The People’s Bank of China warned that the country’s credit and money supply have increased rapidly and indicated that it will refrain from broader monetary easing to support growth.
“The total debt level has been rising relatively quickly,” the PBOC said in its second-quarter monetary policy report on Aug. 1. “Our existing money supply and credit are already relatively large and their growth is also high.”
A Chinese services industry index declined to a six-month low in July, dragged down by a weaker property market. The non-manufacturing Purchasing Managers’ Index fell to 54.2 from 55 in June, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. A reading above 50 indicates expansion.
FTSE Outlook
We have some nearby support to where we are as I write this (6692), at the daily pivot which is 6678, the 10 day Bianca channel at 6663 and the 20 day Bianca channel at 6682. If these support break then we will most likely drop to 6622 again, and below that 6589 and 6512. However, with the rise on Friday and the Portuguese bank news I think we might have a tentative bullish day. As such, the first resistance is 6705, and a rise above that would then need to break 6724. If it did then 6750 and 6761 are the next levels. A break through 6750 will be very good for the bulls and invalidate the drop potentials. I have put in an initial dip on my plan to the pivot but its a bit 50/50 as the various moving averages I watch are all bullish at the moment, though first thing Monday is always a little tricky to call early. I wouldn’t be surprised if the whole of Fridays drop was just a stop killing fake out, especially as it bounced back so well.