This week, investors are on the lookout for China data and further developments regarding the Ukraine crisis for direction on equity markets.
 
Yesterday, China announced its non-manufacturing PMI, a day after releasing official PMI manufacturing figures over the weekend. Trade numbers and inflation figures will be available this coming weekend, while the first Government Work Report since Premier Li Keqiang commenced his term will be released tomorrow. Outside of China, tensions in Ukraine escalated over the weekend causing Asian and European markets to take a hit on Monday.
 
Macquarie Equities Research (MER) takes a look at the on-goings in China and the Ukraine in a report released yesterday on March 3. Here are the excerpts:
 
 
This week’s highlights
 China released the official manufacturing PMI on Saturday. The headline reading at 50.2 was slightly better than consensus at 50.1, which may alleviate some concerns on China’s growth before more data points are available. HSBC manufacturing PMI was due yesterday on March 3 morning (flash PMI was 48.3); February trade and inflation data will be released the coming weekend (March 8-9) and key growth data on March 13.
 
Over the past week, the Chinese Renminbi (CNY) continued to sharply depreciate against the US dollar (USD). (USDCNY rose sharply on Friday morning and closed at 6.1451, +0.88% week-on-week or +1.3% for the previous 2 weeks). While concerns on China’s growth may be one of the driving forces, Macquarie is among those believing that the recent CNY weakness has been engineered by the People’s Bank of China (PBoC) – the policymakers, before pushing forward with forex reform, may have tried to squeeze out speculators who flooded the country with hot money in recent months.
 
The annual National People's Congress(NPC) is kicking off tomorrow and the Chinese People's Political Consultative Conference (CPPCC) kicked off yesterday. The market will focus on the first Government Work Report (to be released tomorrow on March 5) since Premier Li Keqiang commenced his term – consensus for the 2014 GDP growth target is 7.5% and inflation target 3.5%. “Reform” will undoubtedly be the keyword throughout the conferences and MER expects air pollution, food safety, state-owned enterprises (SOE), anti-corruption and social welfare will be among the most frequently discussed topics.
 
Outside of China, tensions in Ukraine escalated over the weekend after Russian senators gave the green light to President Putin’s request to use Russian military forces in Ukraine; such tensions may further sour market sentiment on the emerging markets in general. Meanwhile, US Fed Chairwoman Yellen, in her speech to the Senate, reiterated the Fed’s stance to continue QE tapering unless a “significant” change in the economic outlook is detected, while retaining the view that weak December to January economic data were mainly attributed to extreme weather conditions. MER notes January’s US pending home sales index surprisingly came in flat at 0.1% versus consensus’ 2.0%; February data so far provide mixed signals – Chicago PMI edged up MoM to 59.8 but latest initial jobless claims jumped to 348,000 versus consensus’ 335,000.
 
 
Technically Speaking – MSCI China Index/HSI slightly improved; CSI300 hit 8-month low
The MSCI China Index shrugged off earlier weakness in the second half of the week and rebounded to retest its 50-day moving average (MA) of approximately 60.5 with an improved relative strength index (RSI). Technically, downside for the index looks limited in the near term – 59 is the support and 63 the resistance if the index manages to break out of 60.6-61.5. HSI looks more bullish after breaking out of its 50-day MA – near term support is at 22,500 and resistance around 23,500 (3% upside).
 
CSI300 confirmed an extended bearish trend by breaking down to 2,250 last Monday and rapidly fell to critical support around 2,150 (the previous low recorded last June). A short-term rebound is likely but the index may see strong resistance around 2,250.

Source: Macquarie Research - 4 Mar 2014