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Seeking stability in a freefall market

28-4-2020 11:54:5928-4-2020 11:17:2828-4-2020 11:06:2828-4-2020 10:54:4828-4-2020 10:50:2628-4-2020 10:14:0728-4-2020 10:08:5628-4-2020 10:03:44With no surprise, Asian markets opened lower on Tuesday morning, following perhaps the worst trading day in global markets in more than a decade. Japan’s Nikkei 225 lost 3.6% and is likely to drag other markets to open lower.

US S&P 500 index future rebounded 2.6%, recovering from last night's 7.6% losses.

As US equity markets are likely to have entered into a technical bear market – by definition of falling 20% from the peak – consumer sentiment is vulnerable against market turmoil. This prompted the Trump administration to expedite a stimulus package including a payroll tax cut and support for industries that have been hit by the virus. The likelihood of another rate cut at the 18th of March’s FOMC meeting is also on course of rising; with the futures market now pricing in a 75-100 bps rate reduction.

Monetary and fiscal stimulus serve to provide markets a brief relief but they are unlikely to fix the fundamental issues including Covid-19’s impact and a global supply chain disruption as a result of border controls. Sentiment could get worse before it gets better. 

WTI Crude oil rebounded 8% this morning to US$ 32.6 area, erasing part of yesterday 30% losses. This technical rebound, however, is unlikely to change oil’s bearish trend as demand outlook remains soft and a Saudi-Russia coalition has collapsed.

Italy is having a nation-wide lockdown until April due to a rapid escalation in Covid-19 cases and death toll. Italy may not be the last country in Europe to have distance controls to contain the spread of this very contagious virus. Therefore, the resulting economic impact could be enormous.

In Singapore, investors have been through the worst trading day since the Subprime crisis. Banks are going to be a drag on the benchmark index today as an impending Fed rate cut will have significant impact to their Net Interest Margin (NIM), while a deteriorating macro picture dampens loan growth and could point to higher Non-performing loan (NPL) ratios.

CME FedWatch

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