Good morning, as expected a bit of a hard one to read yesterday, and a theme that will probably continue for most of this week as people start to gear up for the QE news on Wednesday and possible tapering. It feels like an approximately $10bn cut per month is priced in now as indices all held up pretty well yesterday, though gave up some of the gains made on the news that the Fed nominee Summers has withdrawn. The UK government are finally selling part of their Lloyds holding after 5 years, with strong demand from the US apparently for the shares, at around 75p per share.
Unfortunately the FTSE didn’t quite reach my upper target yesterday at 6670 where the short order was waiting but not to worry, better than trying to second guess with a choppy market. It might be a bit clearer today before it gets volatile tomorrow. Overall the FTSE held up well yesterday and maintained the gains on the news driven rally. That rise may well continue for a little longer, but will need to break 6652 to possibly see the 6672 mentioned yesterday.
Asia Overnight from Bloomberg
Oil slid for a third day as the threat of military strikes against Syria receded. Emerging-market currencies weakened and Asian stocks declined before the U.S. Federal Reserve’s policy meeting. U.S. Secretary of State John Kerry joined top French and U.K. diplomats in calling for a United Nations resolution to eliminate Syria’s chemical arsenal, with the ultimate goal of forcing President Bashar al-Assad from power. The Federal Open Market Committee meets today and tomorrow, when members are forecast to cut monthly bond buying by $10 billion to $75 billion. A U.S. government report today is expected to show the annual increase in the cost of living slowed in August.
“The Syrian situation is contributing to these softer prices,” said Michael McCarthy, chief market strategist at financial derivatives dealer CMC Markets in Sydney. “It’s quite clear now we have a path out of the current dilemma, with the U.S. saber rattling and potential for a military strike receding.”
U.S. Futures
Standard & Poor’s 500 Index futures slipped 0.1 percent, contracts on natural gas gained a fourth day and agricultural commodities advanced.
The FOMC will probably cut monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying at $40 billion at the meeting starting today, according to a Bloomberg News survey of economists earlier this month.
“The market consensus is that the Fed will decide to trim its quantitative easing, but investors don’t want to shift their positions one way or the other before the key event,” said Takahiro Nakano, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s third-largest bank by market value.
Fed Leader
Global stocks surged to a five-year high yesterday after Lawrence Summers withdrew as a candidate for the position of Fed chairman. The S&P 500 Index closed 0.6 percent higher after rallying as much as 1 percent.
Summers, a former Treasury secretary, would have tightened central bank policy more than Fed Vice Chairman Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll conducted last week. Bernanke’s term as Fed chairman ends on Jan. 31.
Outlook
I have a couple of supports at 6590 now, namely the bottom of the 10 day Bianca and Raff channels, as well at 6599 being the gap close on the chart from Fridays close. The trend is still up, QE tapering in some form is probably priced in so a long around this level could be a decent trade. I have drawn the arrows to that effect as the 30 minute channel also has support there. As mentioned above with the S&P and Dow not far off supports (and the Dax come to that) we do have some decent support levels. As mentioned this won’t be the easiest week to trade, especially tomorrow, as I am sure we will see a few rumour driven spikes/movements. For today I expect a dip down to that 6590 level and then hopefully a nice bounce back to the 6650 area. If that breaks then we should get 6672 but probably not much more, as the Bianca channels still have the top around the 6650/60 area. Basically a long around 6590 looks ok, a short around 6650 looks ok. The channel bands are narrowing which isn’t surprising as indices get ready to spring out one way or the other once the QE situation is clarified.