US equity markets tumbled over 2% last night as investors are getting increasingly nervous about an impending Fed rate hike at the FOMC meeting this week.
A higher policy rate and tightening monetary policy in the form of the Fed balance sheet shrinking has led to lower market liquidity, and more importantly, dampened investors’ confidence about the prospect of this 10-year bull market. Powell’s comment in the FOMC meeting will be carefully watched by global investors seeking for any clue of potential pullback in tightening. But nothing will change the fact that we are at the end of this ultra-low interest rate era, which means also the end of a credit expansion cycle.
Oil and the US dollar fell despite an Opec production cut, as the demand for energy is loomed by moderated economic growth, higher borrowing costs and trade uncertainties into 2019. Capital flee into safe havens such as gold and treasuries, suggesting that market sentiments remain fragile in a ‘risk off’ trading environment.
Technically, the S&P 500 index has broken down below a key support level of 2,600 and extended losses towards the 2,550 area – a 78.6% Fibonacci Extension level. Trend remains bearish with both of its 10-Day SMA and SuperTrend (10,3) sloped downwards, and momentum indicator MACD trending lower as well. Daily chart shows that the S&P 500 Index has formed ‘lower low’ and ‘lower high’ since the stock market tumbled in early Oct. Weekly chart suggests the index has formed a ‘double top’ pattern.
Fear of possible slowdown in global growth next year against the backdrop of trade uncertainties and rising interest rates has started to erode the foundation of this bull market, spurred hunting for safety and cash.
Negative sentiments from the US turmoil is likely to bring adverse impact on Asian markets today, dampening risk appetite. The downside for Asian equities, however, is likely to be protected by relatively low valuation. Meanwhile, external factors such as ongoing Brexit deal debate and Huawei’s CFO case are likely to spur some short term volatility as well.
US SPX 500 – Cash
By Margaret Yang in Singapore
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