Mike van Dulken and Artjom Hatsaturjants at Accendo Markets, commented to clients this morning:
FTSE 100 called to open -70pts at 6660, back within the confines of a 2-week falling channel, having failed to hold Monday’s 6735 breakout into the New Year. Bulls need a break above 6700, for another chance to escape the channel. Bears require a breach of 6650 overnight lows to extend the retrace towards 27 Dec lows of 6535. Watch levels: Bullish 6700, Bearish 6650
Calls for a negative open come amid a risk-off start to the New Year as Asia (ex-Japan) reacts to China Caixin PMI Manufacturing contracting in December, missing consensus for weaker, albeit still expanding, factory output. This unwelcome macro print compounds Monday’s official data, fuelling fears of slower growth. Watch FTSE Miners and Asia-exposed Banks.
USD is lower, maintaining recent weakness as the US government shutdown shows no signs of resolution. Weakness, however, is not enough to help commodities, where oil is sliding on the back of persistent concerns over global economic growth, retracing much of last week’s strong bounce. Copper off overnight highs, GBP/USD off overnight lows, both hampering the FTSE.
In corporate news this morning property company Hammerson confirms FY performance in-line with market expectations and pauses £300m share buyback for closed period through Feb 2019.
Drax completes acquisition of Scottish Power portfolio of pumped storage, hydro and gas-fired generation, which comprises Scottish Power Generation and its wholly owned subsidiary, SMW. Playtech agrees with Israeli tax authorities to pay extra €28m to adjust for 2008-2017 transfer pricing scheme, with no further penalties imposed.
Faroe Petroleum says independent valuation as of 30 Sept (updated for current oil prices/drilling results) values assets at 186-225p/share, a 22-48% premium to DNO’s 152p “inadequate” offer. Ophir Energy says it is in possible cash takeover discussions by Indonesia’s PT Medco Energi, offer deadline set for 28 Jan.
Amerisur Resources issues CPO-5 ops update with initial flow rates of 4,530 bopd from STT at Indico-1 and immediate 4-well drilling programme confirmed. SolGold announces discovery at Porvenir 2.
In focus today will be fallout from overnight data showing China’s Caixin PMI Manufacturing falling into contraction (49.7 vs 50.2 prev.) for the first time since May 2017, echoing Monday’s official reading below 50 for the first time since Feb 2016. All adding to fears about a slowing economy.
Other data today includes December PMI Manufacturing from Europe. Major Eurozone members are expected to deliver/confirm December declines - France in contraction (lowest since mid-2016), Germany at slowest since early 2016 - while the UK gives up some of November’s bounce.
This afternoon, US PMI Manufacturing is also expected to confirm slower growth in December, while the ISM version reverses November’s rebound.
As for the rest of the week, Thursday offers us European PMI Services, Eurozone Inflation, a Christmas trading update from Next, traffic stats from Ryanair, ex-dividends and the US ADP Jobs report which could be a warm-up for Friday’s Non-Farm Payrolls.
Note also China PMI Services, on Friday, which will be closely watched in light of this week’s PMI misses/disappointments so far, while a trading update from Debenhams could see the troubled retailer’s shares soar or slump depending on the message it delivers.