US equity indices suffered heavy losses on Friday as market reacted negatively against the treasury yield curve inversion and a much worse-than-expected Germany manufacturing PMI reading.

Both of which suggest global economy is undergoing cyclical slowdown and unveiling risk of recession that was masked by strong stock market rally lately. All S&P 500 sectors except defensive utilities were in negative territory, with materials, financials, energy and information technology among the worst performers.

The US 3-month and 10-year treasury yield spread became negative for the first time since 2007, which is usually perceived as an early indicator of economic downturn.

Germany manufacturing PMI dived further into contractor territory in February, registering a reading of 44.7, falling short of expectation of 48.0. Meanwhile, PMI from France and the EU were also missing consensus, putting euro under selling pressure.

Volatility Index spiked to 16 area from the low-teens, and Nasdaq registered 2.5% losses on Friday. Bearish sentiment is likely to overshadow Asian market trading today. As ‘risk-off’ sentiment returns, EUR/JPY is under downward pressure due to its macro hedge character. Seeking for safety is likely to back a strengthening yen whereas soft economic condition in the EU zone is likely to do the reverse to euro. EUR/USD lost 1.4% on Friday and continued to trend down towards the 123.9 area this morning.

This week, market focus will return to the US-China trade talk – an unsolved mystery. Despite Mr Trump’s repeated emphasis on ‘positive progress’, the fact that there are lack of details on the trade deal and a push back in ‘Trump-Xi’ meeting, rendered market participants to remain sceptical.

Asian equities opened broadly lower on Monday, with Singapore’s Straits Times Index gapping down 1.5%. Sector wise, energy, financials and technology are more vulnerable as sentiments turned sour, whereas utilities, F&Bs, REITs are among the more defensive ones. If the sell-off continues, the STI may form a ‘head and shoulder’ pattern in the days to come, which is mid-term bearish.


Germany Manufacturing PMI


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