Although the FTSE outperformed its European peers yesterday, the index continues seeing decent resistance at 6300p as the risk averse bulk of investors remain reluctant to take fresh long positions two weeks ahead of the Brexit referendum. Firmer oil and commodity prices have kept the downside limited over the past two sessions. The positive sentiment could, however, fade following a weak Asian session. The FTSE could retrace toward its 200-hour moving average, 6248p.
Home builders are under pressure in London as the Royal Institute of Chartered Surveyors (RICS) warned against a possibility of a drop in house prices for the first time since 2012. Persimmon (LON:PSN) (-2.47%) and Taylor Wimpey (LON:TW) (-3.65%) dropped aggressively at the open.
Pearson (LON:PSON) (-0.65%) also traded lower in London as news that the company is looking at potential acquisitions in Brazil to benefit from a favourable exchange rate didn’t convince a majority of investors. The share price hit 657p in January’16, after the sale of the FT significantly damaged profits and caused a sustained drop in the stock price. Since then, investors are gradually returning back on board, yet numerous business expansion plans remain insufficient to fill in the value gap after the FT’s sale. Offers remain solid at 850-900p zone.
Some colour out of Asia
Consumer prices in China contracted in May, bringing the year-on-year inflation to 2.0% from 2.3% previously, however, producer prices contracted less, -2.8% y/y vs -3.4%. This is a sign that the slowdown in consumer prices could be temporary.
Asian stock markets pared gains. Nikkei and Topix lost 97% and 1.00% respectively on a stronger Japanese yen. The USD/JPY tested the 106.50 support for the second time since the US jobs report disappointed last Friday. The Bank of Japan Governor Kuroda’s words on Monday revived speculations of an additional monetary stimulus at next week’s BoJ meeting. Kuroda said that the Bank of Japan doesn’t hold a big stake in the ETFs, which has been unsurprisingly interpreted as if the Bank of Japan was preparing to buy more ETFs in order to boost growth and reach its 2% inflation target. Rising dovish BoJ expectations could probably suggest that we could be approaching the range bottom toward the 105.56, May 3rd.
It is worth keeping in mind that the yen has been under an unnatural, therefore a probably unsustainable positive pressure over the past couple of weeks. We believe that the combination of an ultra-loose fiscal and monetary policy should reverse the current positive trend in yen sooner rather than later. Moving forward, we could expect a rebound to gather enough momentum for a recovery toward the 110 mark.
The kiwi (NZD) rallied 1.80% against the US dollar as the Reserve Bank of New Zealand (RBNZ) maintained the status quo at its June meeting. The RBNZ’s accompanying statement was fairly dovish, however, mentioning the possibility of one more interest rate cut ahead.
The Aussie was the sole loser against the US dollar during the overnight trading session. After hitting the 0.75 for the first time in a month, the AUD/USD gave back some of its latest gains. There is potential for a further retracement down to the 0.7430 level. From a technical perspective, the 50-day moving average is about the cross below the 100-day moving average, suggesting that a slide below the 0.7430 mark could encourage a further retreat to 0.7280, the 200-day moving average.