US equities extended their losses for a six consecutive trading day last night, on the compounding effects of the US Federal Reserve's rate hike, plus an impending US government shutdown, as President Trump and the Senate could not reach an agreement over the Mexico border wall issue.

If the president refuses to sign on the short-term spending bill by Friday at midnight, more than 400,000 government employees will not get their pay during the holiday season. The US dollar index suffered a big sell-off and reached a four-week low of 95.9.

The US dollar index initially shot up but subsequently pared gains on Wednesday, as concerns over US economic growth and an impending Federal government shutdown weighed on the greenback.

Strong rally in safe havens, Japanese yen, gold and US treasuries, suggests market sentiment is bearish, and capital flee into safe havens. On the other hand, weakening USD provides at least a temporary relief for Asian’s emerging market currencies, such as CNH, IDR, and MYR. Those currencies are moving in a tight range against the greenback following Fed rate hike.

Chinese banks fall on Thursday partly due to central bank’s latest effort to foster small- and micro business via 100 billion yuan monetary easing measures. This will likely bring negative impact to their asset quality, as many small lenders who were not previously eligible to get bank loans are now able to borrow from those banks. Meanwhile, there is a ‘window guidance’ by regulators to Chinese banks to moderate their profit growth, and ask them to lower the borrowing cost to SMEs. This is likely to further squeeze bank’s earnings.

For Singapore banks, it is probably the concern over global growth and their asset quality as a result of falling crude oil prices that weigh on their share prices. On the other hand. Relatively reasonable valuation and high dividend yield will likely cushion the downside. Rising interest rates will support bank’s NIM and offset the slowdown in other non-interest income items.

Brent Crude Oil prices tumbled 5% to $55.0 area, as glut concerns remained the key factor to suppress energy prices. Falling oil price is exerting pressure over energy sector and Singapore’s offshore & marine sector. Bank’s asset quality and NPL is under scrutiny as they are highly exposed to the oil industrial sector. OPEC+’s recent commitment to curb production by 1.2 million barrels per day failed to lift oil prices, as concerns over a potential slowdown in global energy demand and rising North America oil output overweight effort made by OPEC+.

US SPX 500 - Cash chart

By Margaret Yang in Singapore

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