The Asian equity market rebound following Tuesday’s selloff was short-lived, proving what we mentioned earlier of a ‘technical rebound’ because uncertainties are still clouding the trading climate.

Market participants took this window period to offload more chips, escaping to safe havens such as cash and treasuries. Even commodities are no longer safe under the current climate, as trade tension is threatening the growth of world’s largest consumers for metals. As a result, commodity currencies such as AUD and CAD are under tremendous pressure.

Bearish sentiment from US side is likely to spread over to Asian market opening today. Dow Jones declined for a seventh consecutive day whereas the Nasdaq coming off its all-time high as US Supreme Court have just approved state sales tax on e-commerce sellers, which hammered the share prices of E-bay and Amazon.

HawkishFed and dovish ECB have sent the US dollar index to its highest level in nearly 12 months. That is definitely not good news to emerging market currencies and stocks as strong dollar usually leads to capital outflow from developing markets. With the exception of India and Indonesia, major Asian equity markets have wiped out all their year-to-date gains and dived deeper into negative territory over the past few days.

With trade tension surrounding, Chinese offshore renminbi has entered into fast depreciation trajectory against the greenback since mid-June. Weakening in its currency is accompanied by the recent stock market rout, which suggested confidence is fading and may result in more capital outflow. Chinese policymakers are also under increasing pressure to loose monetary policy in order to stabilize equity markets and cushion the slowdown in economic growth, which is reflected in recent macro-data due to poor export performances.

Crude oil prices declined overnight as OPEC members have reached consensus to increase production by 1 million barrels per day, which is higher than earlier expectation of 600-800k bpd. Technically, oil prices have entered into a bearish trend on the day chart, with both SuperTrend and 10 Day-SMA sloping downwards. With major producers aiming to increase output and thus supply, multiplying the rising stockpile in US commercial crude inventory over the past weeks, this trend may carry on until market reaches balance in supply and demand again.

Hong Kong 50 - Cash

Crude Oil Brent - Cash

By Margaret Yang in Singapore


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