US equity markets tumbled over 3% last night, registering one of its biggest single day loss observed since technology shares rout in early October.

The ‘G20 fever’ is fading as market becomes more sceptical about a major breakthrough by end of February 2019, and treasuries rallied as capital flee into safe havens.

Part of the US Treasury curve, 3-year and 5-year, has inverted for the first time in a decade, sending a ripple effect into risk assets as treasury curve inversion is widely viewed as an early signal of economic recession. In fact, the entire treasury curve has flattened since we entered into rate hiking cycle, and short-term rates rose faster than the long-term rates. Traders are more concerned with the 10-year and 2-year treasury yield spreads, for any signals of possible inversion as well.

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. Technical, the Dow Jones Index failed to breakout above a key Fibonacci level at around 25,800 area and has retraced back to 25,000 area. Weekly chart suggest the index has formed a ‘double top’ pattern.

Negative sentiments from the US turmoil is likely to adversely impact Asian markets, which have already given back some of Monday’s gain as ‘trade truce’ faded quickly and investors reassessed the likely outcome of trade negotiations. Market focus shifted back to fundamental metrics, with recent PMIs suggesting global demand is weakening.

Singapore’s factory activity gauge SIPMM PMI is on track of declining and has fallen for three consecutive months to 51.5 in November. Electronics sector PMI has entered into contraction phase by dipping below 50.0 mark, ending a 27-month streak of expansion.

A nuance divergence between US and China’s official statements on G20 outcome led market to believe the trade negotiation is probably not going to be a smooth sailing. This dampens the outlook of a major breakthrough in trade relationships 90 days from now, and concerns about a revamp in tariffs will likely suppress risk appetite in the days to come.

Qatar’s planned departure from OPEC has threatened the unity of the coalition and clouded the outlook the upcoming OPEC meeting in Vienna. I remain cautiously optimistic on oil prices has major producers – Russia and Saudi Arabia – has reached preliminary agreement to cut production in order to support prices, against the backdrop of a glut situation. Qatar is a minority contributor of OPEC’s overall production and thus the impact is likely to be limited for now.

Chinese offshore yuan has strengthened against the greenback for a second day to a two-month high of 6.843, registering a two-day gain of 1.5%. This signals a relief of selling pressure on the currency as trade tension alleviates and could set the start of a broader rebound in emerging currencies.

US 30 – Cash

By Margaret Yang in Singapore

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