Markets contemplating recession risk

Bring on the rare-earth metals

There appears to be no rest when it comes to US-China trade jitters as the latest potential for China to utilize rare-earth metals as a countermeasure in the current US-China trade war continued to spark worries over further growth downturn. The US 3-month/10-year yield curve remained flashing amber, trudging deeper into inversion going into Wednesday. Certainly, the initial scan into the usage of rare-earth metals in the US had yielded a lengthy list of products within the likes of the defence and technology sectors, but it is also the potential to see to further escalation with any moves that had induced the wave of safe haven search into this week.

Most importantly, one would have noted that with the de-risking had led to the comprehensive S&P 500 index giving up on the 2800 support level, opening further downsides here. Prices had closed above its 200-day moving average and this will be the next point to watch as we await the slew of data releases. With the decline thus far this week, all but the real estate sector can now be seen in red when accounted for the past month, spelling the worries over the impact of the protracted trade war. While all sectors continue to hold onto gains on a year-to-date basis, the risks are multiplying fast into June and further downsides should not be ruled out.

Source: IG Charts

Source: Reuters, IG

Asia open

The lack of signs of recovery from the overt growth concerns look set to provide further selling impetus for Asia markets going into Thursday. At the same time, the strong US dollar trend continues amid the search for safety that could see prices retest earlier highs in April, one to watch. This would likewise hit on the fragile sentiment in the region and aggravate the decline. Look to how the US treasury market would trade amid another empty data docket here in Asia.

Post Asia hours, it would be the second estimate of US Q1 GDP to look out for where the expectation for a downward revision in the reading had been keeping investors cautious. Asia markets may also continue to see the pressure through the day in light of the anticipation for Friday morning’s China official PMI releases. The manufacturing sector index is expected to reflect a state of contraction at 49.9, though the fear is for a bigger disappointment here.

Source: IG Charts

Yesterday: S&P 500 -0.69%; DJIA -0.87%; DAX -1.57%; FTSE -1.15%