FTSE 100 Rallies as Traders Ignore Soft Chinese GDP

2016-01-19 09:57:00 Alejandro Zambrano, Market Analyst

Talking Points

FTSE 100 is higher following boost in global risk-appetite and the Chinese CSI 300 index stabilises
Chinese data disappoints with Industrial Production and GDP lower than expected
More short-covering expected as markets appear oversold

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The FTSE 100 (FXCM: UK100) is higher by 1.5% at the time of writing. This boost in the index has occurred as global risk-appetite rises despite the soft Chinese data that was published overnight. This points towards a saturated market, where bad data is not bad enough as most traders are already short and the market is too oversold. Instead, the lack of selling triggers fear in bearish traders which in turn reduces their bearish bets.

This behaviour does not alter the longer-term view as the Chinese economy is not improving (as per GDP growth) and this will likely underpin the longer-term bearish trend. It was however enough to end the short-term downward trend in the Chinese stock market index, the CSI 300.

Chinese Industrial Production rose by 6.9% YoY vs. an estimated 6% (Bloomberg News) and GDP rose by 6.8% YoY vs. the 6.9% estimated, while Retail Sales rose by 11.1% YoY vs. an estimated 11.3%.

FTSE 100 Technicals

Aggressive traders will probably go short the FTSE 100 at current levels with stops above last week’s high of 6012. However, I think it’s fair to expect that the FTSE 100 will trade sideways or move slightly higher, as traders unwind bearish positions. With this in mind, a break to the current weekly low seems to be a better play at this stage. If and when this happens, the bearish momentum is expected to return. Right now a break to this week’s low of 5737 may trigger a decline to 5700 and 5600 in the case of an extension.

FTSE 100 | FXCM: UK100