Asia market morning update - growth fear tampers

Evasion to safety

The yield-curve as we know, while not commonly talked about alongside the equity market, had captured the market’s imagination since last week. With the inversion of the 3-month/10-year US treasury yield-spread and the San Francisco Fed lending authenticity to this recession indicator, it had perhaps been little wonder seeing the reaction.

That said, the array of literature spreading through the headlines had certainly highlighted that the fact of the matter is that we could be overselling the fear at present. The contributors to this inversion phenomenon had been judged to be more than a lead up to recession with the present-day bond market, what more with the uncertainties still clouding the market outlook. Fed members including Chicago Fed President Charles Evans had also stepped out to reassure the market in terms of the growth outlook. Even if the 3-month/10-year inversion should be succeeded by a recession, this would typically span across the average of a year or more before the occurrence in recent decades. With the Fed also on the market side at present, it would be one looking at data for clearer indications.

Checking on market levels, stabilization was seen for Wall Street at the start of the week. Both the Wall Street and the S&P 500 index concluded near neutral as the VIX settled above 16.0 at the close. A look into the comprehensive S&P 500 index’s sector finds the evasion to safety being apparent in the past week as the defensive sectors were seen leading in the past 5-sesison period as shown in the chart below. Expect this to continue even amid the moderate tampering of fear as the uncertainties sustains this week including the matters over US-China trade talks this week in Beijing.

Asia open

With the fear abating as markets look to the growth concerns in a more collected manner, Asia markets are set to recover from the steep pullback. Early movers in the region had been seen trending mixed with the likes of the Nikkei 225 up 1.6% when last checked. Look to the rest of the region to partake mild gains into the Tuesday session. As said, the slew of central bankers will be the highlight alongside more data out of the US such as the consumer confidence reading for March.

Yesterday: S&P 500 -0.08%; DJIA +0.06%; DAX -0.15%; FTSE -0.42%