Asia Open: Market rout looks set to extend into new week
The bloodbath in Wall Street looks set to extend into the new week.
Fresh rout on retaliatory risks, as China shows little signs of backing down
The bloodbath in Wall Street looks set to extend into the new week, with the sharp market drawdown over the past week seemingly looking for capitulation as market volatility displayed by the VIX hits extreme level—its highest since August 2024. US equity futures point to a follow-through of the bearish momentum, with the S&P 500 looking set to join the Nasdaq in bear market territory in Monday’s futures trading, while the DJIA futures eyes another 1000+ points drop.
Trump’s tariff plans remained at the forefront of the sell-off, with the fresh round of market fears triggered by China’s surprise tit-for-tat 34% tariff on US goods to end last week – a clear signal of escalation rather than compromise. That seems to dampens any hopes that China may respond more cautiously, given their prevailing economic domestic challenges. Eyes will now turn to the European Union for any countermeasures, with one finding it hard to conclude that the worst of the trade tensions has passed. Emotions continue to run high, as JPMorgan raised recession risk to 60% dominates the headlines, while hedge funds were reported to have experienced their most significant margin calls since the onset of the Covid-19 crisis.
From the technical standpoint however, the odds do seem to increasingly favour a corrective upmove in the short term. Weekly relative strength index (RSI) levels for major US indices have dipped into oversold territory, closing in on the levels that marked near-term market lows in 2022. Of course, whether that translates into a bounce depends largely on the emergence of a credible catalyst, where we will have to see prospects of renewed dialogue or intention for mutual tariff rollback to uplift the risk environment.
Nasdaq in bear market territory
For the Nasdaq, its weekly RSI has edged into oversold territory, which as mentioned earlier, was met with a bounce in the 2020 and 2022 bear markets. Coupled with headlines of margin calls presented, it may inevitably question whether the point of capitulation is approaching, offering some hopes of a near-term bounce. On the technical front, the daily chart had earlier indicated a bearish flag formation, and current levels are now hovering near both the flag’s projected downside target, alongside a broader channel breakdown projection. This confluence of technical signals suggests keeping an eye out for signs of resilience — whether through bullish candlestick formations or the market’s ability to shrug off further adverse tariff news.
Asia Open
As expected, the Asia session is bracing for a volatile week, with Japan’s Nikkei pointing to a 7.8% drop at the open, the ASX eyeing a 6.2% decline, and the KOSPI down 5.3% at the time of writing. While there are signs that other trading partners in the region, apart from China, may be adopting a softer approach to US tariffs, hopes for swift and decisive progress remain limited as the US economic restructuring plans could remain a longer-term agenda.
Expectations for aggressive Federal Reserve (Fed)’s rate cuts ahead seem to translate to a bigger drag on regional banking stocks, with market participants now looking for five 25 basis point (bp) rate cuts through 2025 – a stark contrast from the three cuts priced just a month ago. In this environment, the Singapore’s Straits Times Index (STI) appears particularly vulnerable due to its heavy banking sector exposure, with the recent sell-off likely to extend toward the 3,650 level following a channel breakdown.
For the Hang Seng Index (HSI), a sharp catch-up reaction is expected after its holiday break, though there is growing anticipation that for China authorities to respond aggressively to US tariffs, a ramp-up in stimulus efforts could be nearing to counter the impending tariff impact. Thus far, authorities have shown little inclination toward currency devaluation. With the timeline set for counter-tariffs in place, there appears to be a brief window for negotiations to resume, with more clarity to be presented ahead as to whether recent China’s counter-tariffs is a strategy to gain leverage ahead of any talks.
Hang Seng Index at near two-month low
On the technical front, near-term sell-off is expected, as market participants initially react to China’s retaliatory tariff announcement, with the index breaking below the key 21,200 support level. On a broader scale, however, a rising channel pattern remains intact, with critical support around the 19,000 level. This zone could present an attractive entry point for those looking to position for a continuation of the broader uptrend.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
- Forex
- Shares
- Indices
See more forex live prices
See more shares live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
See more indices live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.
