US indices suffered heavy losses on Wednesday with sentiment dampened by reignited trade risk and a mixed corporate earnings picture.

The S&P 500 index closed 0.65% lower, falling below the 3,000 points market and continued to trend downwards in the Asian open. Sector wise, industrials (-2.17%), energy (-1.15%) and consumer discretionary (-0.90%) were among the biggest losers whereas defensive utilities (+0.43%) and health care (+0.02%) managed to close higher. 9 out of the 11 major sectors ended lower last night.

Netflix is the first of the FAANG companies to announce its 2Q earnings this season. Its share price tumbled 11% during after-market hours due to missing analysts’ expectations on new subscriber growth (+2.7 mil vs. 5.3 mil). Bank of America’s results beat expectations but investors are concerned about the banking sector’s forward earnings in a rate-cut cycle. So far in this season, around 85% of the S&P 500 companies have their profit beat market consensus, despite some of them citing forex and trade risks.

The volatility index rebounded overnight from 15.2 to 15.7, suggesting that the ultra-low volatility period is unsustainable and markets are starting to get nervous about a potential escalation in the US-China trade tariffs as well as a deepening global slowdown.

Crude oil price fell for a third day despite the data released from EIA/DOE pointing to another week of decline in US commercial crude inventories. The stockpile has fallen by 3.11 million last week, higher than expectations of a 2.3 million drop. This also marks the fifth-consecutive week of inventory decline. Lower crude oil price is likely to weigh on the energy, offshore and marine sectors in Singapore.

President Trump’s threat to raise more tariffs on China goods in order to expedite trade talks has not only resulted in a retracement in equities but it also fuelled the demand for gold and other safe-haven assets. Gold price has resurged to a six-year high of US$ 1,428 last night. If the trade talk process yields little progression, the risk of a reignited tariffs war is likely to increase, resulting in economical and geopolitical uncertainties that markets do not desire.

As the impact of the trade war spread out across the globe, the Bank of Korea has unexpectedly announced an interest rate cut today amid an escalating spat with Japan over trade issues. The Korean equity market pared losses and the Korean Won plunged around 0.3% against the USD following this announcement.

Today, Bank Indonesia is also expected to cut its policy rate and kick off a new easing cycle. This move is supported by a lacklustre growth picture, lower crude oil prices, strengthening rupiah and the re-election of a government who has pledged to stimulate the economy.

US SPX 500 - Cash

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