Markets brace for China's return

Stock markets were dealt a thrashing during trading last week as the rapid loss of faith towards banking stocks triggered a wave of pessimism which encouraged anxious investors to flee from riskier assets. This risk aversion boosted the Yen and left Asian equities vulnerable, with Japanese stocks tumbling more than -11% for the week defying the recent move by the Bank of Japan (BoJ) in implementing negative rates to keep the Yen weak. Although European and American equities received another false lifeline during trading on Friday following the unexpected 12% surge in global oil prices, sentiment towards the global economy remains weak and the fundamentals which have been dragging stock markets lower are still intact.

This morning Asian equities received an uplift with the Nikkei surging over 7% as tepid growth data from Japan raised hopes of additional stimulus measures taken by the BoJ in a bid to revive growth in the world’s third-largest economy. These hopes may be short lived as overall investor confidence remains low, while the growing concerns over the state of the global economy complimented with depressed oil prices has soured risk appetite considerably. The fading expectations over the central bank taking action to boost growth may open the Nikkei to losses in the near term and this may trickle down to the European and American equity arena.

China trade data disappoints

Sentiment towards the global economy soured this morning following the dismal China trade data for January which displayed a sharp -11.2% drop in exports and a horrible -18.8% decline in imports. Investors holding China stocks were already set for a torrid return to trading after the Lunar New Year break sheltered them from the chaos in the global markets, now with trade data pointing to further weakness in the economy, the Shanghai Composite Index may be set for steeper declines this week. This major miss in the China trade balance may enforce a wave of risk aversion leaving riskier assets under pressure, while also adding to China’s woes as the country currently battles with increasing capital outflows. Sentiment continues to remain firmly bearish towards the Chinese economy and with more negative economic releases expected, this may compound the global turmoil which has left stock markets quite unappetizing.

FTSE100 – spotlight

The FTSE100 experienced one of its best days in six months last week Friday with the index surging over 3% on the back of the unexpected 12% rise in global oil prices which consequently boosted oil stocks. Regardless of recent gains, the FTSE100 remains under intense pressure and when risk aversion sweeps across the board, previous gains may be relinquished as investors discard riskier assets for safe haven investments. From a technical standpoint, this index is still bearish on the daily timeframe and a decisive break back below 5650 should encourage sellers to send prices towards 5500 once again.

Sterling pressured ahead of EU referendum

The re-established wave of risk aversion from the ongoing global woes has left the Sterling noticeably depressed, while extinguished expectations over the Bank of England raising rates in 2016 continues to diminish investor attraction towards the currency. Last week’s recovery against the USD had nothing to do with an improved sentiment towards the Pound and with concerns lingering around the possible upcoming Brexit vote; bears may be encouraged to attack prices further. Data from the UK has followed a lackluster fashion which has already left the Sterling vulnerable, and if an agreement at the European summit is reached which opens gates to a referendum in late June, then the pound may tumble as fears intensify over the UK leaving the European Union.

The GBPUSD remains bearish on the daily timeframe as long as prices can keep below the strong 1.4600 resistance. For an extended period the pair has ranged but a solid breakdown back below 1.440 may open a path to the next relevant level based at 1.4200.

WTI bounces on deal hopes

WTI experienced a remarkable 12% bounce during trading on Friday as the renewed possibilities over a production cut invited investors to slash bets on lower oil prices. Regardless of these short term gains, this commodity remains heavily bearish and with Iran sending its first oil shipment to Europe since international sanctions were lifted, more supply will be added to the heavily saturated international markets. These bounces clearly go against the fundamentals which are of an excessive oversupply and diminishing demand and as such should offer bearish investors an opportunity to send prices towards $25. From a technical standpoint, previous support at $30 may act as a dynamic resistance which should encourage sellers to send prices towards $25.