US equities extended losses for six consecutive trading days last night on a compounding effect of Fed’s rate hike and an impending US government shutdown as President Trump and Senate could not reach an agreement over Mexico border wall issue. If the President refuses to sign on the short-term spending bill by Friday midnight, more than 400k government employees will not get their pay during the holiday season. US dollar index suffered a big sell-off and reached a 4-week low of 95.9.
US dollar index initially shot up but subsequently pared gains on Wednesday, as concerns over US economic growth and an impending Federal government shutdown weigh on the greenback.
Strong rally in safe havens, Japanese yen, gold and US treasuries, suggests market sentiment is bearish, and capital flee into safe havens. On the other hand, weakening USD provides at least a temporary relief for Asian’s emerging market currencies, such as CNH, IDR, and MYR. Those currencies are moving in a tight range against the greenback following Fed rate hike.
Chinese banks fall on Thursday partly due to central bank’s latest effort to foster small- and micro business via 100 billion yuan monetary easing measures. This will likely bring negative impact to their asset quality, as many small lenders who were not previously eligible to get bank loans are now able to borrow from those banks. Meanwhile, there is a ‘window guidance’ by regulators to Chinese banks to moderate their profit growth, and ask them to lower the borrowing cost to SMEs. This is likely to further squeeze bank’s earnings.
For Singapore banks, it is probably the concern over global growth and their asset quality as a result of falling crude oil prices that weigh on their share prices. On the other hand. Relatively reasonable valuation and high dividend yield will likely cushion the downside. Rising interest rates will support bank’s NIM and offset the slowdown in other non-interest income items.
Brent Crude Oil prices tumbled 5% to $55.0 area, as glut concerns remained the key factor to suppress energy prices. Falling oil price is exerting pressure over energy sector and Singapore’s offshore & marine sector. Bank’s asset quality and NPL is under scrutiny as they are highly exposed to the oil industrial sector. OPEC+’s recent commitment to curb production by 1.2 million barrels per day failed to lift oil prices, as concerns over a potential slowdown in global energy demand and rising North America oil output overweight effort made by OPEC+.
US SPX 500 – Cash
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(By CMC Markets)