A huge session of earnings is on the cards

The bulls will take a flat session in US stocks given the weakness seen in new home sales and further escalations in the Ukraine. 

Still, most equity traders would have been looking forward to trade in the post-market; given the cracking numbers from Facebook and Apple, our desk certainly saw a sizeable pick-up in activity in these trader favourites. Both stocks have rallied strongly in the post-market and especially with Facebook it appears that this is name that has good short-term upside potential.

With Facebook and Apple having reported, we have now seen 32% of S&P 500 companies report, with an above average 74.8% having beaten on EPS, while 53.5% have beaten on the revenue line. On aggregate, we’ve seen 7.3% earnings growth and 2.5% revenue growth, with the big revenue growth coming from the oil and gas space (at 9.6% year-on-year).

A big night of earnings on the cards

US futures have moved modestly higher in Asian trade, although they aren’t shooting the lights out by any means. Earnings really come into the spotlight though in pre- and post-market trade today, with Nucor, Pulte Homers, Coca-Cola, DR Horton, Peabody, GM, 3M, Verizon, Newmont Mining, Amazon, Visa (bear in mind VISA has an 8.1% weight on the Dow Jones index) ,Microsoft and Caterpillar. Caterpillar is one of the few companies globally that report earnings that can have implications on other asset classes. With good exposures in emerging markets (notably China) commentary around these geographies can have implications on asset classes such as currencies or Australian bonds. The market currently expects Q1 EPS of $1.23 and interestingly it has missed in four of the last five quarters, although the market generally looks at commentary more importantly, with the stock rallying five of the last seven earnings reports. Revenue is expected to print $13.11 billion.

With no real lead, Asia has looked more intently at domestic factors and as a result there has been divergence in the index performance. China has seen reasonable buying activity, with the CSI 300 putting on 0.2%. One market worth having a look at is the China A50 index, which is the top 50 Chinese mainland stocks; however the futures trade on the Singapore exchange, which means non-mainlanders, can freely trade this instrument. The 30-day correlation between the China A50 and CSI 300 stands at 94%, so it’s a great way for traders to get exposure to the Chinese market.

Looking at price action in this market, and after a failed break of the downtrend drawn from the February 2013 high earlier in the month, the index is now back re-testing this former support. It looks as though we could be seeing a turning point in this index and I would potentially look at long positions on a daily close above 6858 (the index is currently at 6784), adding on a move above 7157 (the April 10 high and 61.8% retracement of the December to March sell-off).

A flat end to the holiday-shortened week in Australia

The ASX 200 is finishing the shortened trading week of on a flat note, although the bulls will point to the bid that came into the market near yesterday’s high of 5521. Volume has been good, although no one is reading into this as yesterday was equity options expiry, and traders who had written call options were buying the underlying stock that they had to subsequently deliver. Modest buying has been seen in utility, materials and industrial names. If we look at the market on the hourly chart, there is divergence seen on both stochastic and the RSI (with price) and thus I wouldn’t be surprised to see a slight reversal in the coming days. First stop would be 5469.

Despite a weaker Japanese market we are expecting a firmer open in Europe. In terms of data, the key release will be the German IFO report and the market is expecting a modest decline in this survey, with the expectations sub-index falling from 106.4 to 105.8. A good number in this data point should lower expectations of ECB action in its coming central bank meeting. It’s also shaping up to be an ECB talk fest as well, with ECB members Knot, Constancio and president Mario Draghi speaking. In the US we also get durable good (expected to increase 2%), while we also get initial jobless claims. 

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