Market sentiment turned sour drastically after the European Central Bank (ECB) decided to hold interest rates unchanged at -0.4% and announced no quantitative easing plans despite citing weakness in the economy.

Mixed US earnings on Thursday also weighed on sentiment. The three major indices fell from their record highs, with the Nasdaq index closing 1.0% lower. Energy (-1.16%), Information technology (-0.79%), materials (-0.77%) were among the worst performing sectors, whereas defensive consumer staples (-0.04%), communications (-0.08%) were relatively outperforming.

After the ECB disappointment, investors are assessing the upside of equities even if the Fed slashes rates by 25bps next Wednesday. The upside seems to be limited in a fully-priced in scenario, against the backdrop of a broad economic slowdown and stretched valuation. S&P 500 index is trading at 18 times forward P/E, close to the upper range of the historical channel.

EUR/USD had a volatile session last night and closed largely unchanged at 1.1147 area, suggesting forex traders are eyeing a September rate cut. Futures market is pricing in a 84.7% probability of a 10bps rate cut by the ECB in the September 12th meeting. In the short term, support levels could be found at around 1.1117-1.1128 area.

The restart of US-China trade talks in Shanghai next week has sent USD/CNH into the spotlight. The offshore Chinese yuan was sensitive to trade talk progress and volatility was usually higher during those periods. Warm gestures from Beijing kicked off a positive start to the negotiation, as China has allowed several companies to purchase US agricultural products and lifted some punishing tariffs. However, key issues including structural reform and technology transfer remain untouched.

Amazon’s 2Q profit per share came in at US$ 5.22, lower than average estimate of US$ 5.56 per share. Despite 20% increase in revenue, the company’s profit margin was squeezed by higher spending such as logistics and shipping costs. Looking forward, spending costs in the third quarter may be higher as the company invests in its infrastructure to prepare for the year-end shopping season. Big spending on the one-day shipping initiative spooked investors, said an analyst at Morningstar. Amazon’s share price plunged 1.35% on Thursday and fell another 1.66% to US$ 1,973 in after-hours trading.

Google’s parent company Alphabet has its 2Q earnings smashing market forecast from the upside. Revenue came in at US$ 31.7 billion, higher than the consensus of US$ 30.8 billion. Advertisement revenue climbed 16% from last year, alleviating investors’ concern of slowing business. Cloud computing and consumer hardware segment registered strong growth rate of 40% to US$ 6.18 billion, increasing its contribution to the group’s revenue. The company showed confidence about its future outlook as it announced decent share purchasing plans and big capital expenditure. Alphabet’s share price is trading 8% higher in the after-hours at US$ 1,225.

In Singapore, the STI followed the US session into selling mode on Friday, partly due to SingTel’s ex-dividend which contributed to around an 8 points fall in the benchmark index. Banks, real estate, technology and consumer sectors are also trading lower, reflecting a broad ‘risk off’ sentiment.

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