Markets continue to be influenced by news flow from the Far East and Asia and again this morning weakness in Asian markets is affecting European indices on the open.

The rally that equities have been enjoying since March was always going to be tested at some point in 2010 and it looks like a combination of tests is now challenging investors resolve.  Firstly, the earnings season in the US has got under way and started with a bit of a blip after Alcoa missed Wall Street estimates.  Often in the past Alcoa’s earnings have set the precedent, so this is not a great start.  There are also some concerns about the performance of non-financial stocks which have been the focus ever since the credit crunch.  This time round earnings for banks are due to rebound significantly, but outside of that sector many firms are still facing serious headwinds.

Secondly, the threat of rising interest rates will play the major part in any equity sell off.  Whilst we can’t expect interest rate increases in Asian economies and in particular China to influence policy in Western economies, the markets will take note in any shift in the language and actions of central banks around the world.

So further weakness in the FTSE is expected this morning and we could test yesterday’s lows around 5460 before too long.  Support for the FTSE is seen around previous resistance of 5450 and below there the well know 5380 level where the market struggled to get through back in November and December so if we retrace to that area good support is expected.

The Cadbury’s saga continues and with Fererro dropping out of the running it comes as a little surprise that their share is slightly higher this morning.  With so few other bidders out there the offer from Kraft is the only one that’s left on the table and if Cadbury’s continues to fight them off and maintain its independence then their share price is in for a shock.  Tomorrow’s trading update from Cadbury’s will be interesting for shareholders to assess whether the firm truly is better off on its own or if the bid offers better value.

There’s a trickle of economic data this morning with German GDP, UK industrial production and then this evening the US Fed Beige Book.  UK manufacturing PMI numbers have continued to point to a solid rise in output at the end of 2009, but the official industrial production numbers have yet to reflect this.  Today should show that strength with good numbers expected.  For the US Beige Book it too started to show signs of improvements towards the end of 2009 with the majority of districts reporting a pickup in activity, so this theme is expected to continue with pressure on labour conditions also remaining in tact.

FX and commodity markets experienced some decent volatility yesterday with gold in particular suffering big losses towards the end of the session.  Gold’s weakness was contrarian to other precious metals such as platinum and palladium which hit 18 month highs yesterday, but they too are giving much of those gains back this morning.

Oil suffered a similar fate seeing declines later and this morning it is forging new lows with Feb Brent testing $78 and the Mar contract dropping below $79.  Inventory numbers this afternoon could lead to further volatility for oil prices and when you consider what happened last week (a gap higher with a big rally within a few seconds followed by a sharp decline minutes later), oil punters might be best to sit on their hands until after the data and make a call then.