FTSE 100 live outlook prediction analysis for 5th May 2021
Technology stocks dropped on Tuesday as Janet Yellen warned that interest rates are likely to rise due to surging US Government spending. The technology-heavy Nasdaq index sank more than 2pc in New York, driven by falls at some of the world’s biggest companies, and the broader S&P 500 headed towards its worst day since mid-March. Shares in Apple tumbled nearly 4pc, while Tesla fell 3pc.
Ms Yellen, the US Treasury Secretary, said interest rates may have to rise modestly to prevent the world’s largest economy from overheating due to high levels of government spending. Markets extended losses after US Treasury Secretary Janet Yellen said in an interview with The Atlantic that interest rates may have to rise modestly to prevent the world’s largest economy from overheating due to high levels of government spending. She then backtracked.
The remarks pushed the dollar higher and sparked market jitters.
It came after a sudden sharp drop in share prices around midday UK time, causing European equities and US futures to suffer steel drops.
The FTSE 100 and other indices in Europe had opened higher, but traders were left scratching their heads when bourses tumbled 0.5pc in four minutes without any obvious cause.
Countering China
The G-7 is considering a U.S. proposal to counter what the White House sees as China’s economic coercion. The U.S. wants a consultation mechanism to ensure a coordinated response to China’s moves, according to a diplomat who asked not to be identified. While the U.S. is still more hawkish than the EU on China, Germany, Italy and France are hardening. The U.K. is in a trickier place. As host of the G-7 it is seeking to strike a balance, so the challenge for Boris Johnson’s government is to avoid framing the group as anti-China. Also on the agenda for an upcoming two-day meeting is a proposal to set up a group called “Friends of Hong Kong.” Meanwhile, China’s UN envoy called on the U.S. to ease the pressure on North Korea.
Keep Climbing
Commodities jumped to their highest in almost a decade as major economies rebound from the pandemic. Demand for metals, food and energy is surging, while poor weather harms crops and transportation bottlenecks curb supplies. The Bloomberg Commodity Spot Index, which tracks prices for 23 raw materials, rose 0.8% Tuesday to its highest since 2011 and has climbed more than 70% since March 2020. Commodities may jump another 13.5% in six months, with oil reaching $80 a barrel and copper reaching $11,000 a ton, Goldman Sachs said in a recent report. However, the jury is out on whether this is the start of a supercycle — an extended period during which prices are well above their long-term trend.
Tech Selloff
U.S. equity futures wavered and Asian stocks were set for a volatile openafter a selloff in technology shares, amid comments from Treasury Secretary Janet Yellen that rates will likely rise as government spending ramps up and the economy responds with faster growth. In a subsequent interview, the former Federal Reserve Chair clarified her remarks, saying she wasn’t predicting or recommending rate hikes. The S&P 500 pared tech losses with gains in the commodity, financial and industrial sectors. Australian and Hong Kong futures declined. Holidays in major markets including Japan, China and South Korea will limit trade in Asian hours.
Virus Variant
The impact of the Covid-19 variant first identified in India is starting to be felt in other parts of Asia. Singapore is limiting social gatherings to five people and tightening border curbs. Vietnam is keeping people in quarantine centers who have completed the mandatory 14-day isolation after three cases of the India variant were found. And India’s cricket regulator suspended the Premier League indefinitely after multiple players contracted the virus. Elsewhere, the world’s biggest economies agreed to back plans for “vaccine passports.” And grim news from the most vaccinated nation, which has just had to reintroduce curbs as cases surge, despite more than 60% of its adult population having had two shots.[Bloomberg]
US & Asia Overnight from Bloomberg
U.S. equity futures rose Wednesday and Asian stocks were steady after a technology selloff and Treasury Secretary Janet Yellen’s comments on interest rates ruffled markets overnight. The dollar slipped.
S&P 500 contracts advanced following a climb in commodity, financial and industrial sectors that helped the gauge pare losses. Nasdaq 100 futures were in the green after weakness in the likes of Apple Inc., Tesla Inc. and Amazon.com Inc. dragged the index lower. Australian shares rose and Hong Kong fluctuated. Markets in Japan, China and South Korea are shut for holidays
Yellen said rates will likely rise as government spending ramps up and the economy responds with faster growth, comments that economists regarded as self-evident. In a subsequent interview, the former Federal Reserve Chair said she wasn’t predicting or recommending rate hikes.
Commodities rallied to a near decade-high as the rebound from the pandemic fuels demand. Copper climbed back above $10,000 a ton and oil advanced. New Zealand’s dollar rose against all its Group-of-10 peers on a strong jobs report. Treasury futures were steady, with cash markets closed in Asia.
The debate on whether government spending could spur excessive inflation comes as stock valuations hover near the highest levels in two decades. Investors have been reluctant to push rallies further despite some blowout corporate earnings. While the Fed has assured markets that interest rates will remain at current lows throughout the recovery, strengthening data raised concerns that policy makers may move to tighten sooner than anticipated.
FTSE 100 Outlook | Trading Signals | Forecast | Prediction | Analysis
Bit of a shame the bulls couldn’t quite manage the 7050 short level before we got that large drop thanks to Yellen’s comments (subsequently clarified!), but we did see the lower daily support at 6910 hold for a decent bounce. The 2 hour chart has gone bearish though as you would expect and has a red coral resistance at 6986 to start with today, and that is just above the Hull MA as well, which is at 6982 – as such we may well see a stutter here on any early climb.
A drop back from there down to the 6925 daily support and then another bounce would fit pretty well and may well tally with the S&P defending its 4160 support level initially. The S&P bulls need to break above the red coral on the 2h at 4194 today for a push past the 4200 level again.
We are on the daily pivot as well as I write this so the bulls will be keen to break above this first thing, and we also have the 200ema on the 30m chart at 6970, so the bulls will need to be quick out the blocks. I think that “micro flash crash” yesterday caught most off guard, especially as it was then compounded by Yellen’s comments.
Below the 6925 level then we have the low from yesterday at 6910, and then 6890 with a cluster of supports here including the 10 day Raff channel bottom, and then 6859 for the next daily support of note. Will we see the usual BTFD kick in though today for a bit of Bull Wednesday!?
Above the 6985 level then the bulls may well push on for 7000 and possibly even the 7050 level which remains untested as it didnt quite reach that yesterday. It was a positive for the bulls that the S&P defended the 4130 level well, and that is the line in the sand for the moment. Still think a bigger sell off will be later in May rather than just yet.
So, cautiously optimistic for today and a bit of a rise across the board. Good luck today.
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