Index Outlook, are we addicted to ultra-loose monetary policy?

Nick Batsford, CEO of Tip TV, was joined by Keith Bowmen, Equity analyst for Hargreaves Lansdown, on the 9th of October 2015 for the Tip TV Finance Show to discuss China, Fed hike bets, an Index outlook and a look at data ahead.

Slight drop in March Fed rate hike bets, Markets stay calm

Batsford noted FX Street, who outlined the falling Fed rate hike bets following the release of the Fed minutes yesterday. The bets for October remained at 4.6% and December at 36.3%, meanwhile, the chances in January fell 0.6% and for March they fell 0.5% following the release of the Fed minutes.

They continued that the rise in oil price is keeping markets upbeat, with Brent up 2% and as a result Comex Copper was up 2.4%. The rally in Oil and Copper is supporting the commodity dollars. However, the excess supply problem means that this oil rally may be short lived. Bowmen continued on the theme of market strength, noting the ECB and BoJ plans to ease monetary policy further and thus he highlighted our addiction to ultra-loose monetary policy as a reason to question whether markets have a firm-footing,

Index Outlook

Batsford commented on the S&P 500, which is testing resistance at 2000, with recovery above 2000 signalling a relieving rally with a target of 2130.

When concerning the DIJA, Batsford outlined it is testing resistance at 17000 on the weekly chart, with a breakout offering a target of 18300. Meanwhile, a reversal below 16000, although unlikely, would confirm the primary downtrend.

He highlighted that Germany’s DAX remains weak, with recovery above 10500 indicating a bear rally. Only a follow-through above 11000 would signal that the downtrend is over.

Batsford moved on to the FTSE 100, where he noted that it is proving more resilient, respecting support at 6000. A breakout above 6300 indicates a relieving rally, while follow-through above the descending trend line would suggest that the correction is over. However, reversal below 6000 would confirm the primary downtrend, but is unlikely.

Watch the video to see more on Hong Kong’s Hang Seng, Japan’s Nikkei 225, the Shanghai Composite Index and the VIX.

China is still a concern

Batsford noted Elliott, who highlighted that the head of the IMF Christine Lagarde is confident that China will reaccelerate economic growth next year after this year’s slowdown. However, Jose Vinals, director of monetary and capital markets at the same institution warned of growing risks. ‘Vulnerabilities in EM’s are important, given their significance to the global economy… the recent financial market turmoil is a demonstration of this materialisation of risks’. Bowmen made it clear that the sharp growth over a short-period of time in China was bound to cause problems, yet he noted that perhaps the consumer is more upbeat than we realise, elaborating on Nike who said China was a strength for their business.

Future for the markets

Bowmen outlined the Q3 reporting season as the next significant event, and added that this should be positive as well as the recent oil price rise. On the negative side, he commented that the addiction to loose monetary policy is a continued problem in our current global economy.