4th October 2019
- String of dire service sector activity sends shockwaves through global markets
- Surprise services slowdown suggests UK economy underwent contraction during September, signalling possible recession
- US services slump registers second major activity gauge miss of the week
- German business activity stumbles and Eurozone stagnates
- Pound leads major currency gains as Boris Johnson unveils Brexit plans
London’s benchmark FTSE 100 ended the day 0.63pc lower to 7077.64 as global economic growth concerns were compounded by worries Britain could be heading into recession. The stock market decline added to yesterday’s plunge of more than 3pc.Today saw the FTSe100 almost test 7000, but bounced well from 7007 instead to nearly recapture 7100. Economic data remains weak and US employment data did markets no favours yesterday afternoon.
The German market is closed today as the country celebrates Unity Day. The CAC 40, IBEX 35 in addition to the FTSEMIB held up well considering the turmoil in the UK market. The CAC closed 0.30pc lower to 5,438.77.
Pre Brexit Recession
Fears that the UK has entered a pre-Brexit recession were reignited yesterday after dire services sector data signalled one of the worst months for the economy in more than a decade. A frenzied sell-off on the FTSE 100 entered its second day as investors ran for cover, putting the blue-chip index on track for its biggest weekly fall since early January 2016.
Around £95bn has been wiped off the market value of London’s biggest firms during four successive sessions of losses, including Wednesday’s 3.2pc wipe-out, hitting millions of savers’ pension investments as traders fret over the severity of a global economic slowdown. Miserable data from mainland Europe and the US suggested the world economy is slowing sharply.
Activity data for British firms showed Brexit anxieties taking hold during September as the economy buckled under the pressure of turmoil in Westminster, raising the possibility that the UK economy shrank overall during the past three months.
US Labour Market
Fears are cementing about the impact of the trade war and global slowdown on the U.S. labour market, ahead of Friday’s key monthly employment report. Among the causes for concern: a gauge of manufacturing jobs has already hit the lowest since 2016, and other figures have shown a slowdown in private-sector payroll gains. There’s been a sharp drop in small-business hiring plans, and the latest data point is the worst U.S. services-employment index in five years, or nine years (depending on which measure you prefer). That last indicator sent Treasury yields tumbling, and stocks with them, until Wall Street caught the “bad news is good news” bug. Analysts are bracing for more downbeat figures Friday, with their pessimism on par with times when hurricanes slammed the country in 2017 or when the federal government shut down in 2013.
Asia Markets Relief
Stocks in Asia looked set to end the week with a reprieve, as the wave of poor economic data increased expectations for the Federal Reserve to cut rates this month. Futures edged higher in Japan and Australia, with contracts little changed in Hong Kong. Yesterday, the S&P 500 rose the most in a month after climbing back from a drop of more than 1% sparked by the weakest reading on the U.S. services sector in three years. Odds the Fed eases policy further at its next meeting spiked as the data came just after the worst factory numbers in a decade. The yield on 10-year Treasuries dropped for the sixth straight day and the dollar dipped. Elsewhere, oil fell 0.6% to $52.31 a barrel and gold was at $1,505.10 an ounce.
FTSE 100 Trading Signals, Forecast and Prediction
Well the bears took charge again yesterday initially with a move down towards the 7000 level, however the bulls then fought back at 7007 and here we are back above 7100. We are just testing 2 hour resistance to start with as I write this at 7128, so we may well see an initial drop down from this level towards the pivot at 7080. We also have the green 30min coral at this 7080 level so I would expect to see a bounce here if we see it early in the day.
Of course, today is Non Farm Payroll dat, forecasted at 145k versus 130k previously. Will it continue the recent trend of rubbish data instead though? Its out at 1330 this afternoon so be aware of that. Of course, the poor data yesterday ld to the bounce as it puts more pressure on the Fed etc for easing and stimulus. NFP is the monthly change in employment excluding the farming sector. Non-farm payrolls is the most closely watched indicator in the Employment Situation, considered the most comprehensive measure of job creation in the US.
If the bulls do defend the 7080 level then we should see a rise towards the 7130 again, and then above this we have 7185 as resistance. Above this then 7240 is the 2 hour coral and would be quite the bounce from 7007 yesterday. the SP could quite easily run out of steam after its bounce at 2920 to 2930 area though, and the ASX200 (Australia) is due to hit some resistance at 6555 soon, so we may well see a further leg down. I don’t think we are out of the woods yet in terms of bearishness! The daily charts have obviously all gone bearish now with the FTSE showing moving average resistance at 7272, the SP at 2954, the Dax at 12178. Keep an eye on those areas as short entries.
If the bears were to break below 7080 today then 7000 is still the round number support (or just above), however, we may well still get that slight move below to trigger some stops mentioned yesterday at 6982. we have the bottom of both the Raff channels in this area as well. If that breaks though then 6950 beckons in fairly short order.
For today though I am watching 7080 initially, 7130 as resistance and then 7180. Really wouldn’t be surprised to see this bounce a bit higher yet, but the bears I am pretty sure are not finished yet. Good luck for today, don’t forget NFP and enjoy the weekend. Been quite the week!
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