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More Greek indecision

Last updated 2/8/2012 12:29 PM ET (GMT -5) 0 Comments - Add your comment

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David Morrison

Derivatives Market Strategist, U.K.

Wednesday 8th February 2012

Headlines

Chart To Watch - Nikkei (.JP225)

Here is a daily chart of the Nikkei.  As you can see, the Japanese index has been generally rising along with other global stock indices in recent months. But despite this upturn, it is still in a long-term decline as highlighted by the downward-sloping trend line and is only now pushing up against its 200-day moving average. The rally came to a halt overnight at around the psychologically-important 9,000-mark, which also ties in with the 200-DMA, although the resulting sell-off has been modest. If further selling materialises then the levels to keep an eye on are 8910 and 8750. The former marks the 38.2% Fibonacci retracement of the July-November sell-off, while the latter was the previous support/resistance. Should the index manage to rise above the 200-day moving average then 9150/200 becomes the next target. This area ties in with the 50% retracement as well as the trend line resistance. A break above that level would confirm a change of trend.

GFT Inflation Indices

The Bank of England's MPC begins its meeting today and will release its statement tomorrow. It is expected to keep rates on hold at 0.50%, and to increase its asset purchase facility by £50 billion, although there is a slim chance of a £75 billion increase.

The ECB is also expected to keep rates on hold at 1.0%, but Mario Draghi's press conference will be the highlight. Investors will be anxious to hear if the ECB president gives any clues over the size and scope of fresh Long Term Refinancing Operations, which are widely anticipated at the end of this month.

Most Actively Traded Instruments

Index	Commodity	Equity
UK 100 (.UK100)	Spot Silver (.SILVER)	BP (.BP)
US Wall Street (.US30)	WTI Crude Oil (.WTI)	Barclays (BARC.L)
US Tech 100 (.USTECH)	Brent Crude (.BRENT)	Apple (.AAPL)

UK and Europe

Market	Ticker	Price	Change	Percent
UK 100 Cash	.UK100	5876.0	- 14.0	- 0.24
Germany 30 Cash	.DE30	6749.0	- 5.0	- 0.08
France 40 Cash	.F40	3410.0	- 2.0	- 0.05

UK Market News

Asian Pacific markets closed higher on Wednesday as optimism grew that Greek debt talks were finally nearing a conclusion after a string of delays. The Shanghai Composite rose 2.4%, while Hong Kong’s Hang Seng added 1.5% and the Australian S&P/ASX gained 0.4%. Japan’s Nikkei closed up 1.1%, but came off its highs after touching its 200-day moving average at just above the psychological level of 9,000.

European stock markets opened higher today. The gains were limited though due to the lack of any significant economic data and as traders waited for news on the Greek debt swap negotiations. But with the euro rallying, some investors seem to have convinced themselves that Athens is about to finalise details of a debt swap with bondholders, and its policymakers are close to accepting further austerity measures. Others are probably now just waiting for a confirmation before jumping on the bandwagon. While the FTSE 100 was up only modestly this morning, the German DAX rose around 1%. The latter has broken above the 6780 resistance level, clearing the way for a possible move to 7,000, the previous level of support.

Bank stocks were among the best performers in London due, in part, to bullish comments about the sector from Citigroup. But Citi analysts were less keen on Royal Bank of Scotland (RBS.L) as they cut its rating to "neutral" from "buy." Miners and energy stocks were also strong, although BHP Billiton, the world’s largest miner, bucked the trend as it reported a surprise 6% fall in its half-year earnings.

The economic calendar was relatively light today. The British Retail Consortium’s Shop Price Index, a measure of inflation, fell to 1.4% y-o-y in January from 1.7% in December. Food inflation eased to 3.7% from 4.2%, while non-food inflation fell to zero from 0.3%. German Trade Surplus was €13.9 billion in December, a touch shy of expectations of €14.1bn. For the whole of 2011, the surplus was €158.1bn compared to €154.9bn in 2010. From 2010 to 2011, the country’s exports increased 11.4% and imports rose 13.2%. The French budget deficit narrowed to €90.8 billion in December from €97.2bn the month before. The Swiss Unemployment Rate in January was unchanged at 3.1%, as expected.

The markets sold off this afternoon on news the ECB had not yet decided to contribute to the Greek debt restructuring. The FTSE closed down a touch while the CAC and DAX ended flat.

Big Winners

Big Losers

US Indices

Index	Ticker	Price	Change	Percent
US Wall Street Cash	.US30	12,834	- 44.0	- 0.34
US 500 Cash	.US500	1,344.0	- 2.50	- 0.19
US Tech 100 Cash	.USTECH	2,528.0	- 4.0	- 0.15

US stock indices reversed their earlier losses to close higher yesterday as optimism grew that Greece may finally seal a deal on its debt swap. The Nasdaq edged up 0.1% to end at a fresh 11-year high, while the Dow and S&P eked out gains of 0.3 and 0.2 percent.

US stock index futures inched higher this morning, although given the substantial moves in Asian Pacific markets overnight the US reaction was muted. European equity markets were also more buoyant than their US counterparts, although all risk assets benefited from a stronger euro. Despite numerous delays and missed deadlines, investors have convinced themselves that Greece is about to finalise details of a debt swap with bondholders, and its policymakers are close to accepting further austerity measures. Agreement on the latter will allow the EU/IMF/ECB troika to finalise the second Greek bailout package. But often it is better to travel than to arrive, and the austerity measures already in place have contributed to a slump in Greek budget revenues. Further cuts in spending will only exacerbate current troubles. Traders should bear this in mind once any agreement is announced.

US stock index futures drifted all morning before turning flat at the open. There was no US data out today and volumes have remained thin, which makes for another dull session. But we did have few notable earnings releases from Disney, Life Technologies, Netgear and Time Warner, which were all better than expected. So far the fourth quarter season has been mixed, but once again investors are giving companies the benefit of the doubt even as analysts continue to cut earnings estimates for the next quarter.

The indices turned lower at midsession on news the ECB had not yet decided on whether or not to contribute to the Greek debt restructuring. But the sell-off was shallow and short-lived. Meanwhile FOMC (voting) member John Williams said that the economic recovery remains “frustratingly slow” and reaffirmed Ben Bernanke’s comments from yesterday that there is scope for additional stimulus should the recovery stall or inflation fall below the 2% target.

Technical Outlook - DAX (.DE30)

The DAX broke above 6780 today, a level which has recently provided some overhead resistance. But the rally soon came to a halt as traders took advantage of the lack of any significant economic data and started to book profits. This occurred around 6830, which ties in with the 127% Fibonacci extension of the September-October rally. If this level is cleared, a move to 7,000, the previous level of support, becomes possible. The 78.6% Fibonacci retracement of the May-September sell-off lies further ahead at 7037.  On the downside, the first significant level of support is at 6700 while a more established region is around 6430/50.

Commodities:

Precious Metals:

Market	Ticker	Price	Change	Percent
Spot Gold	.GOLD	1731.0	- 14.0	- 0.81
Spot Silver	.SILVER	3372.0	- 43.0	- 1.27

After correcting downwards for two days, gold and silver both bounced back sharply yesterday. The move corresponded with Ben Bernanke's testimony before the Senate Budget Committee. The Fed Chairman repeated his downbeat outlook for US employment, despite Friday's strong non-farm payroll report. This encouraged buyers to pile back in to precious metals on the expectation of further Federal Reserve stimulus. Any additional intervention adds liquidity to the markets and dilutes the value of US dollars in circulation. With the ECB and Bank of England also likely to intervene this month, gold and silver are seen as stores of value which investors can buy to help preserve wealth. But gold is still below its recent $1,760 high, and this is the next significant resistance level. Both metals slipped after the ECB said it was undecided over contributing to the Greek debt swap.

Crude Oil:

Market	Ticker	Price	Change	Percent
Brent Crude Oil Spot	.BRENT	11614	- 7	- 0.06
WTI Crude Oil Spot	.WTI	98.26	- 0.28	- 0.28

Both WTI and Brent crude rallied a touch this morning, lifted in part by continued firmness in the euro. Despite further delays, investors remain convinced that Greece will soon announce that a debt swap has been agreed with private bondholders. They also expect Greek policymakers to agree to a package of further austerity measures which will ensure that the EU/ECB/IMF troika allows payment of the country's second bailout package. Brent has continued to forge higher since breaking above resistance at its downward-sloping trend line last week. It is now trading around $116 per barrel - a level which has also acted as resistance previously, and marks the 61.8% Fibonacci retracement of the April - August 2011 sell-off. WTI has lagged Brent significantly, but $96.60 has held as support on a closing basis recently. However, WTI failed to hold above its 50-day moving average at $99.30 after today's US inventory data revealed another bigger-than-expected build-up in gasoline stockpiles.

Looking forward - Thursday 9th February

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About The Author

David Morrison has worked in financial markets for over 25 years. He has been instrumental in setting up two spread betting companies. He has managed trading desks and has implemented and run successful risk-management strategies. He has appeared on Bloomberg TV and has written numerous articles covering economics and trading strategies using fundamental and technical analysis. He joined GFT in February 2009 to deliver commentary and research for derivatives products, and trades on his own account.