24th May 2019
Mounting fears of a tech Cold War breaking out between the US and China have triggered a sharp slide in global stocks as trade tensions continued to escalate. Beijing warned that trade talks will only continue if the Trump administration softens its stance as China’s Ministry of Commerce urged the US to “adjust its wrong actions”. British chipmaker ARM and Panasonic became the latest companies to cut off ties with Huawei, fueling concerns of the widening impact of Donald Trump’s clampdown on the Chinese mobile phone giant.
The FTSE 100 slumped 1.4pc, led lower by its tumbling oil stocks as crude prices suffered their worst day in 2019. Tech stocks led the sell-off in the US as the benchmark S&P 500 index plunged as much as 1.6pc in afternoon trade.
The pressure on markets was increased by signs of the global slowdown spreading to the US. IHS Markit’s closely-watched purchasing managers’ index sank to a three-year low as businesses blamed trade war worries for the recent deceleration.
President Trump said a trade agreement with China remains a “good possibility” as he announced the administration’s latest farm aid package. He called Huawei “very dangerous,” but said the blacklisted company could be included in any deal. Earlier, the IMF said U.S. companies are paying almost all the costs from the administration’s levies, disputing the president’s assertions that Beijing is footing the bill. Meanwhile, China blamed Washington for wrecking trade talks and urged it to fix “wrong practices” to resume talks and one of Asia’s best-performing bond managers offloaded his holdings of Huawei debt last week.
Trade Tensions Hit Stocks
Asian equity futures suggest a selloff from the U.S. will continue. U.S. stocks tanked as trade concerns fueled the flight to safety. The Dow lost almost 300 points as Beijing continued to assail the Trump administration’s moves to curb Chinese companies. The dollar dropped against most G-10 peers, with the yen and Swiss franc benefiting the most. Gold jumped almost 1% and platinum fell. Oil tumbled close 6% in New York and London for its worst day of 2019.
End of May
Theresa May is on her way out — the only question is when. The U.K. prime minister will inform her advisers Friday morning of the day she plans to step down, which the FT said is expected to be the week of June 10. EU elections started Thursday in the U.K., and results won’t be known until after the rest of the bloc votes, mainly Sunday.
FTSE 100 Trading Signals, Forecast and Prediction
While yesterday was very weak the 7220 support area and bottom of the 10 day Raff channel held and we have seen a small bounce overnight from there. US futures are also up overnight. On the news front today highlights include UK Retail Sales; US Durable Goods* and ECB’s Nowotny. Durable goods* at 1330 will be worth keeping an eye on, as the forecast is -2% versus 2.6% previously.
If the bulls can build on the overnight rise, then I am looking for an initial move towards the 7270 level where we have the first resistance of note. Above this 7300 looks like a stronger shorting level so as such I am looking at a small short at the former and another at 7300. Should we break above 7300 then its short term crisis averted, everything is hunky dory and we should see a rise to 7400, with a stutter at the 2 hour coral resistance at 7331. Funny how sentiment can change in trading! I am working on the assumption today that 7300 may well cap any rises.
On the support side we have yesterday’s close at 7231, but better looking support at yesterday’s low at 7210 and the fib level at 7198. I am thinking that should we dip to this area then we may well see that area hold. Of course we head into a long weekend with both the UK and US markets having a public holiday Monday.
Should the 7200 area break (and we do have the 10 day Raff channel at this level again, so would expect an initial defence at least) then 7160 is the next support below that on the daily, with 7163 the cam break out level. Should we get this low today then a bounce here would be likely. I haven’t put it in the trade plan as I think the 7200 area will hold but do bear it in mind.
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