Equity markets in Asia dropped on the session and have now posted the biggest weekly decline this year, after a report showed that quarterly earnings at China’s third largest private bank missed analyst expectations and have revived concerns over the strength of the Asian financial sector. Some strength was seen in metals, however, as a drop in supply for both copper and zinc sent prices higher. The central question going forward will be whether or not corporate earnings reports will be able to support the strong rallies in equity markets that have been seen so far this year.
The MSCI Asian Pacific Index fell roughly 1 percent in Tokyo trade, creating a total weekly decline of 1.7 percent (the biggest drop since the middle of December). In the US, the S&P 500 futures are holding steady after posting a 0.7 percent drop yesterday, while copper and zinc rose 1.3 and 0.7 percent, respectively. The Nikkei 225, the Heng Sang in Hong Kong and the Shanghai composit index all finished the day lower. Ahead today, the key macro data will be the US Home Sales report for the month of February.
The main story overnight came from the Agricultural Bank of China, which released a lower than expected earnings report and led investors to question the level of economic growth that is currently being seen in the country. This follows yesterday’s weaker Chinese manufacturing report and this shows that the negative effects of the global slowdown have reached into multiple sectors of the economy. The wider trend in Asian corporate earnings releases shows that more than half of the companies releasing earnings figures have surprised analyst estimates to the downside.
In the US, today’s Home Sales report will be key for guiding sentiment, with analyst expectations calling for a strong number, reaching the highest levels seen since the middle of 2010. Yesterday’s employment data in the region was also positive, as the number of new jobless claims dropped. But the poor manufacturing data in both China and Europe remained the driving factor and brought stock markets lower.
The other main story was seen in commodities markets, with copper rising to nearly $8350 per metric ton, while both zinc and led had similar moves, both pushing higher to trade above the $2000 level. Declines in global supplies are being seen as the main driver of the move, offsetting some analyst expectations for declines in demand.
The AUD/USD is currently breaking out of the uptrend channel previously seen on the daily charts, with prices now forming a new downtrend channel on the shorter term time frames. Currently, prices are seen grinding through key Fib support at 1.0410. A daily close below here will be a very bearish signal and suggest a test of the 61.8% Fib support on the daily charts.
The FTSE is having problems ahead of major long term resistance in the 6080 region. This has been an area we have been watching for some time and the lack of market conviction to push prices through this level does not bode well for prices going forward. We are in the early stages of a bearish engulfing candlestick formation and a break back below 5750 will suggest that a short term top is in place. Sell rallies.