US equities sell-off gained momentum overnight after Asia Pacific equities were mixed yesterday. The US stock plummet could be a result of mixed corporate earnings and a weaker New Home Sales data. Correspondingly, bonds, gold prices and the Japanese Yen rallied as risk averse attitudes prevail and investors rushed toward safe havens. 

The stock rout in the US could be distressing to global investors, however a sharply lowered US bond yield may be beneficial to the bigger picture in the long run. The US 10 year bond yield fell sharply overnight to around 3.10% compared to the recent peak at 3.248%. A temporary relieve from a higher borrowing cost could allow investors to reposition in the financial markets with fewer tensions. Investor sentiment may be vulnerable in the short run but a correction could also mean a chance to start afresh.

The US dollar strengthened overnight putting most major currencies under pressure. The offshore Chinese Yuan slumped and USD/CNH is trading closer to its two months high above ¥6.9500. The Euro slid below a key psychological level at €1.1400 on a series of disappointed PMIs data. The ECB interest rate announcement due tonight could be crucial to the Euro movement, although markets generally expect no change to the policy as trade concerns and budget issues are ongoing. In contrast, the Canadian dollar edged higher after the Bank of Canada express higher confidence on the economic outlook, and lifted the interest rate by 0.25%. The currency market may remain sensitive to the US dollar movement as more US economic activity is unveiled. This includes the Durable Goods and Unemployment Claims data due later tonight.

Commodity markets were mixed as stock markets tumbled. Key industrial metals were mostly lower, although zinc rose on concerns about inventory decline. West Texas Oil bounce but Brent oil slid on a surprise stockpile build showed in the US Department of Energy Crude Oil Inventory report. The conflicting signal issued in commodity markets may be resolved through a higher volatility.

 

In Australia, stock markets may remain under pressure for in the remainder of the week. On one hand the determination of the Chinese Government in combating a slower economy could mean good news to the Australian economy. On the other hand, the aftermath of US-China trade war is slowly surfacing in the US corporate earnings reports, leading to a global risk-off tone. Investor buying in Australia may be limited but a bounce is possible if more corporations reveal a stronger sales and revenue number.