Equity markets reversed losses that were seen earlier in the week on positive stories coming out of China and the US banking sector. The positive banking story came mainly with the stronger earnings results that were posted by JP Morgan Chase (JPM), and this is helping to bring a positive tone to the corporate earnings seasons which is still in its early stages. JPM rose by 6 percent to be the biggest gainer in the Dow Jones Industrials Index after comments from the bank’s CEO suggested that the company is likely to post a record high performance in earnings this year.
This was a surprise to markets, as the main story from the company this year so far has been the $4.4 billion trading loss that was seen during the second quarter. The news helped the banking sector as a whole, with Wells Fargo & Co. seeing a rise of more than 3 percent. Wells Fargo’s earnings performance was also one of the main stories from the sector, as profits rose by 17 percent in the quarter. The S&P 500 rose 1.7 percent on the session and 0.2 percent on the week, to close just below 1360 on Friday.
Prior to the positive news, markets had begun to price in the possibility of the weak corporate earnings season, and the benchmark US equity index had posted declines for 6 consecutive sessions before seeing a reversal. The Dow Jones was also higher, closing just below 12,780 on Friday but the rally is being viewed with some skepticism as trading volumes were seen at roughly 5.5 billion shares, which is nearly 20 percent below the 3 month average.
The story in China was also seen as supportive even though the country posted its lowest GDP growth rate in 3 years during the week. The poor performance, however, is seen as being reason for the country’s central bank to bring further interest rate reductions in order to help stimulate the rate of manufacturing and foreign investment. This speculation is following the latest rate reduction that was seen at the central bank’s previous monetary policy meeting and is in line with the prospects seen for many central banks globally.
The GBP/USD is starting to look heavy despite the earlier bounce off of critical double bottom support at 1.5240. This area is now a triple bottom and is the key area to the downside going forward. The latest daily close is moderately encouraging but we will need to see a break of resistance at 1.5720 before the bias turns to sideways. This area is also where the cluster of moving averages is seen, so prices are likely to have some difficulty grinding through here. With this in mind, expect any significant rallies to be sold into.
The S&P 500 is caught in a symmetrical triangle and this is starting to throw off some of the technical signals that were seen previously. On a shorter term perspective, the index is caught in an uptrend channel, so we will need to see a break and daily close above the daily downtrend line before we can start to view the longer term perspective as bullish.