JP Morgan says sell into any bounce in equities

Analyst Mislav Matejka said the risk-reward trade-off in shares had “worsened materially”, fourth quarter company results were unlikely to provide any clarity and activity had weakened too, with the US ISM manufacturing index falling into recession territory.

Matejka’s proxy for margins had also turned outright negative for the first time since 2008.

Low oil prices and a strong dollar were also poor omens for company earnings and it was “too early” to add to positions in the commodities patch.

One particular area of the market that might spring further negative earnings surprises on unwary investors was the commodities space, the analyst said.

Oil was 36% below its average level of 2015 yet analysts were only discounting a single digit fall in US earnings for the sector in comparison to 2015 and flat profits in Europe, he said.

"This is a big gap. Furthermore, the CNY outlook is crucial for commodities here. We fear that CNY could weaken quite a bit further, as the positive impact on activity of past policy actions wanes. We find it difficult to see commodity sectors, Energy and Mining, rallying while the risk of further CNY depreciation remains."

Investors should wait for the Chinese yuan and US dollar to peak before wading into the latter, JP Morgan added.