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The awful decline in US shares on Friday, saw investors bracing for prospects of an equally awful start in Asia on Monday. S&P 500 closed below psychological 2000 level, tumbling 5.8% on the week, the worst weekly loss in almost four years.
The Dow Jones lost around 1000 points last week. The last time the index gave up so much was right after the Lehman Brothers collapse, where it plummeted nearly 1900 points in the week ending 10 October 2008.
Taiwan, Hong Kong, and Indonesia entered the bear markets last Friday after the recent stock slump. The threshold for a bear market is defined as a 20% fall from a recent peak. Asian governments took action, or pledged measures over the weekend to brace for another session of selloff today. Taiwan curbed short-selling activity, banning short selling of borrowed stocks at prices lower than the previous close.
China allowed pension funds to invest in stocks for the first time, although their equity allocation is capped at 30% of their total net assets. It reiterated that the China Securities Regulatory Commission (CSRC) will enforce the violation on rules that limit stake sales by major shareholders.
There was no reserve requirement ratio (RRR) cut from the PBOC, although many think that a 50-100 basis point reduction is a matter of time. Meanwhile, South Korea just said it will act ‘pre-emptively’ to support its domestic equities.
Australia and Japan have already started the week on a bearish note, declining over 2% as of 8.30am SGT. We are going to see a fearful Asia today, as risk selling activity is expected to blanket the regional markets. Geopolitical tensions in the Korean peninsula are going to add to the weak sentiments.
In the currency markets, the greenback fell over 1% last Friday, which saw the dollar index slide below 95.0. Euro and JPY were the main beneficiaries. EUR/USD advanced well above 1.13, heading towards 1.14 while JPY slipped below 122.
On the other side, commodity currencies AUD and CAD weakened against the USD, on weak commodity prices. USD/SGD finally broke out of its $1.40-1.41 band, trading higher and testing resistance $1.4150 in early Monday.
Crude oil prices took another fall as Iran said it will raise production ‘at any cost’ to protect its market share. WTI briefly dipped below $40, with the level still holding firm. Softening USD may have provided some support in that regard. Against the backdrop of tepid demand on sluggish growth in the world economy, held back by a slowing China, it is hard to fathom why oil producers are pumping out more oil.
OPEC producers, notably Saudi Arabia, and Iraq are producing more oil than what they want to maintain, while US stockpiles are nearly 100 million barrels above the five-year seasonal average. At this rate, the fundamentals of oil are going to get worse before it gets better as the supply glut widens. This means we are likely to see more weakness in oil futures in the coming sessions.