A rally in haven assets such as gold, treasuries and Japanese yen sent a cautious message to Asian equities at open, even though US benchmarks registered mild gains overnight.

The 10-year treasury yield dipped below 2.0% mark to 1.96%, the lowest level seen since Nov 2016.

Sectorial performance of the S&P 200 index also painted a defensive picture – real estates (+1.82%), utilities (+1.24%) and communication service (+1.06%) were leading the gain whereas energy (-1.74%), industrials (-0.21%) and financials (-0.19%) were underperforming. Information technology sector registered a small gain of 0.29%.

Crude oil prices tumbled nearly 5%, a poor reaction in response to OPEC’s production cut extension until Mar 2020 as weak demand outlook loomed over the energy market. Tonight’s US DoE commercial crude oil inventory numbers may paint a clearer picture of US demand for gasoline, as the summer driving season kicks off. The US commercial crude oil stockpile previously registered two weeks of decline.

The earnings outlook for Corporate America in the second quarter is turning sour, and this might be another factor to inhibit risk-taking. More companies are revising down their earnings guidance based on an already-lowered consensus ahead of the result season as global growth slows and tariffs bite.

The Reserve Bank of Australia has cut interest rate to a record low of 1.0% yesterday, which led to a flash plunge in AUD before the currency rebounded and traded higher against the USD. Although slower wage growth and tepid inflation remains a key concern for the reserve bank, the central bank governor highlighted a few positive prospects of the economy and its jobs market. Therefore, there is unlikely to be another cut in the short term. Technically, 0.700 remains a key resistance level for AUD/USD.

In Singapore, the Straits Times Index retraced for a second day as profit-taking activities kicked in and slumping crude oil price dampened the offshore & marine sector. The benchmark index face selling pressure at around 3,330-3,390 points where the previous ‘gap down’ lies.

The Monetary Authority of Singapore is considering to ease the leverage ceiling for Singapore REITs from the current 45% level. This could lead to a long-term boost to the sector, as it allows for flexibility in their acquisitions and enables them to be more competitive in bidding properties with competitors such as private equity and foreign peers. In the short term, however, Singapore REITs have already recorded big gains year-to-date, and there is need for some price consolidation.

US markets will be closed on Thursday for their Independence Day, leading to lower trading activities and poorer market depth towards the end of this week. Risk management measures need to be put in place to protect traders’ positions in the event of flash moves in thinly traded instruments.

Gold - Cash

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