Stock markets in Asia are heading lower for the first time in the last three trading sessions as investor sentiment continues to show weakness after the disappointing outcome of last week’s European GDP releases. These declines in equity markets were not as bad as they could have been, however, as positive Retail Sales numbers out of the US helped to temper the market’s lack of optimism.
Trading volumes in stock market are holding at their lower Summer levels and as a result, most of the trading activity is being centered on individual stocks rather than on the broader indexes. Trading ranges in the Nikkei 225 are being limited to plus or minus 0.5 percent because of this and this is likely to continue until markets return to full strength. At the moment, trading volumes are seen at 10 percent lower than the monthly average, and this is another factor that is helping markets stall after last week’s negative data releases.
Looking at the broader trends, we can see that the recent moves have put the Asian Topix index at levels 14 percent below the yearly peak that was posted back in March. This puts the Topix company shares at a trading value equal to 0.9 times the average company book value, which is much less than the 2.2 multiple that is seen in the S&P 500 and the 1.4 multiple that is seen in the Euro Stoxx 600. This valuation is significant because numbers less than 1 suggest that a company’s stock can be purchased for less than the value of the company’s total assets.
Last week’s data showed that GDP growth in the Eurozone dropped by 0.2 percent relative to the first quarter in 2012, and the data set most of the tone in trading until the US Retail Report showed that strength in consumer spending rose by 0.8 percent. This is the first monthly increase in this gauge in 4 months, and was much stronger than the 0.3 percent rise that was the market’s consensus estimate.
Going forward, Asian markets will begin turning the focus toward corporate earnings releases, given that only 29 of the 1,672 companies that are listed in the Topix have reported earnings. Thus far, 52 percent of the companies that have reported earnings have fallen short of analyst estimates, with steel companies showing the biggest declines so far. Look for Asian stocks to weigh on global equity averages if these trends continue.
The GBP/USD is slowly grinding higher and is once again pressuring the major double top resistance that is seen at 1.5760. A break here should be particularly forceful, given the number of times the area has been tested. Adding to the significance of the level is the fact that this is also where the 100 day EMA comes into play, so expect some fireworks if this area gives way.
The S&P 500 is still caught in its 4H uptrend channel but we are coming into an inflection point as prices test the major psychological resistance at 1400. This is also a historical price area, so prices have been unable to overcome the region on the first test. Expect some follow through if this level goes but this will start to set up short entries as prices are getting expensive for the yearly averages.