FTSE shrugged off all the post Brexit political drama in UK and surged 144.17 pts or 2.27% to close at 6504.33 yesterday. That's a quick reversal of all the post referendum lost and indeed, the index closed at the highest level this year and broke key resistance level at around 6400. Sterling, on the other hand, lost steam in its recovery is is trading back below 1.34 against Dollar. There are a lot of speculative theories regarding the strength in UK stocks, including a view that Brexit won't happen eventually. But it's believed that depreciation in Sterling is helping corporate profits and UK's economy as a whole, at least in the interim period. Also, there was addition boost from comments by BoE governor Mark Carney on monetary easing.
Carney said the central bank is considering a "host" of measures to guard the economy from the shocks of Brexit as "uncertainty could remain elevated for some time". And, more importantly, he directly said that "The economic outlook has deteriorated and some monetary policy easing will likely be needed over the summer." That's seen as hint that BoE would cut interest for the first time since 2012 and that might happen in July or August.
Technically, FTSE's break of 6427.32 and 6487.89 resistance marked the completion of a head and shoulder bottom pattern (ls: 5768.22, h: 5499.50, ls: 5788.74). From a near term perspective, the index should now target 100% projection of 5499.50 to 6427.32 from 5788.73 at 6716.55, with prospect of hitting 7122.74 high later.
DJIA also surged overnight and closed 235.31 pts, or 1.33%, higher at 17939.99. That marked the best 3-day gain in 4 months too. US equities are likely lifted by expectation that Fed will hold their hands off from rate hike this year. There are talks that Fed would indeed stand pat until 2018. Currently, fed funds futures are pricing in 0% chance of hike till November. Odds fro a December is a mere 9%. DJIA's strong rebound from 17063.08 should have confirmed the completion of consolidation pattern from 18167.63. DJIA would likely have a take on historical high of 18351.36 in near term.
A batch of economic data are released from Japan today. National CPI core stayed negative and dropped -0.4% yoy in May while Tokyo CPI core dropped -0.5% yoy in June. Tankan large manufacturers index was unchanged at 6 and outlook improved to 6 in Q2. All industry capex rose 6.2%. Unemployment rate was unchanged at 3.2% in May, household spending dropped -1.1% yoy. From China, the official PMI manufacturing dropped to 50 in June while the Caixin PMI manufacturing dropped to 48.6. PMI data will be the focus today. Swiss will release SVME PMI and retail sales. Eurozone will release PMI manufacturing final and unemployment rate. UK will release PMI manufacturing. US will release ISM manufacturing and construction spending.