As long as the FTSE 100 holds above critical support at 4517 we remain in a third wave advance heading towards the first target zone of 5500.
Equity markets continue to act in a fashion that is consistent with the third bullish wave remaining in place. Despite, all the airtime given to the view that the equity market rally from July is running out of steam any dips in the market have, so far, found strong buying demand. Attention has been focused on the sharp falls in the Chinese stock market which intraday reached 20%. However, Asian developing equity markets tend to be more volatile and moves of this magnitude within a structural trend are not uncommon. The Shanghai index has now reached a plethora of key technical supports including its trend line support from December 08 and the 38.2% fib. This could now provide a base for at least some consolidation if not a rebound.
The surprise from yesterday’s economic news came from the BOE minutes and the 6 – 3 vote to extend QE. The fact that King, Besley and Miles voted not for a more aggressive £75bn indicates that the central bank is not going to risk the recovery in the UK. What is evident is that for the moment the Bank believes that the most significant risk lies to the downside of the economy given the increase of spare capacity within the system. Of course, the minutes reflect a decision taken before this week’s higher than expected inflation report and further signs of economic improvement from the industrial sector. This will make at least any further decisions on expansionary policy uncomfortable but does not suggest that the central bank will be quick to remove the stimulus already proposed. The dovish stance of the central bank should continue to weigh on sterling but for the moment cable (£/$) remains stuck in a 1.6000 to 1.7310 range. Longer term the risk is skewed to cable breaking this range on the downside.
Today, the US releases the Philly Fed manufacturing survey with the market expecting a further improvement particularly after the strong NY Fed survey on Monday. Weekly jobless claims is also likely to show a small improvement regarding employment whilst the conference board leading index is also due. In the UK, attention will be focused on retail sales to see whether the resilience in this sector can be maintained and we will have another report on the dire state of UK public finances.
Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:
Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.
