European Open: US traders return, FTSE and DJI in focus

Asian Indices:

• Australia's ASX 200 index rose by 94.4 points (1.47%) and currently trades at 6,527.80
• Japan's Nikkei 225 index has risen by 176 points (4.5393%) and currently trades at 26,225.15
• Hong Kong's Hang Seng index has risen by 262.03 points (1.24%) and currently trades at 21,425.94
• China's A50 Index has risen by 47.02 points (0.33%) and currently trades at 14,371.23

UK and Europe:

• UK's FTSE 100 futures are currently up 32.5 points (0.46%), the cash market is currently estimated to open at 7,154.31
• Euro STOXX 50 futures are currently up 21 points (0.61%), the cash market is currently estimated to open at 3,490.83
• Germany's DAX futures are currently up 76 points (0.57%), the cash market is currently estimated to open at 13,341.60

US Futures:

• DJI futures are currently up 431 points (1.44%)
• S&P 500 futures are currently up 197 points (1.74%)
• Nasdaq 100 futures are currently up 60.75 points (1.65%)

It looks like we’ll see a ‘sympathy bounce’ for risk assets today. Copper tried (but failed) to hold below $4.00 yesterday and index futures are higher today. And with US traders returning to desks it seems like a good opportunity for a small countertrend rally before the next leg lower for global equities. But, given the negative sentiment overall, it’s a case of taking each day as it comes. Countertrend rallies can be small or large, and there comes a point that markets need to naturally correct after a heavy bout of selling. I believe we have reached that point that a technical bounce is due, but that does not make me bullish on the market overall. And will be looking for opportunities to sell at the first sign of weakness.

RBA plays down fears of recession, scoffs at market pricing

The RBA Governor Philip Lowe delivered a speech, and the subsequent Q&A shows he remains in disbelief over market pricing when asked about the cash rate being at 4% by the end of this year. With 6-meetings left in the year, he pointed out it would require consecutive 50bps hike with a 75-bps hike thrown in along the way – and scoffed at the prospect. However, given his track record of late then perhaps he should take more notice of market pricing as they have been more reflective of the current outcome ahead of time.

As this is the same governor that not so long ago did not see a rate hike until 2024 at the earliest. Still, he also notes that it is difficult to see a recession with such a strong labour market (side note – employment is a lagging indicator). But the RBA face the same issue as elsewhere; inflation is well above their target range and aggressive hikes run the risk of triggering a recession, but not necessarily fixing the underlying issues which are driving inflation.

FTSE 100 (4-hour chart):

The FTSE 100 has fallen around -8.5% since the 7646 high, although it is trying to rally from 7,000 support. As such big levels rarely give way first time around, yesterday’s rally comes with little surprise. So the question now is whether it can extend its rally today, and I’m leaning towards a tentative yes. Copper tired (but failed) to hold below $4.00, oil prices are higher on supply concerns and there are three technical reasons we suspect the DJI has found a temporary floor. Yet the core view remains bearish, so for today we’ll look for a rally toward 7200 resistance before assessing whether a lower high can then form.

FTSE 350: 3963.31 (1.50%) 20 June 2022

• 210 (60.00%) stocks advanced and 135 (38.57%) declined
• 1 stocks rose to a new 52-week high, 31 fell to new lows
• 19.71% of stocks closed above their 200-day average
• 100% of stocks closed above their 50-day average
• 6% of stocks closed above their 20-day average

Outperformers:

• + 26.14% - Euromoney Institutional Investor PLC (ERM.L)
• + 8.12% - TUI AG (TUIGn.DE)
• + 7.83% - Carnival PLC (CCL.L)

Underperformers:

• -7.28% - XP Power Ltd (XPP.L)
• -5.24% - Genuit Group PLC (GENG.L)
• -5.18% - Pennon Group PLC (PNN.L)

DJI (US30 Daily Chart):

Whilst sentiment remains fragile for investors, there are a few technical reasons to be on guard for a potential bounce on the Dow Jones Industrial Average. The index found support at its 200-week eMA, traded beneath the lower Keltner band and Friday’s bullish candle closed back above 30,000. Given AUD is also the strongest major overnight then our next target is near the monthly S1 around 31,000. A break above here assumes a deeper correction, but until we see such a break the assumption is that a swing high could form around or below 31,000.

Economic events up next (Times in BST)

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