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, which Yeap calls a clear signal of escalation rather than compromise.
“That seems to dampen any hopes that China may respond more cautiously, given their prevailing economic domestic challenges,” he adds.
Eyes will now turn to the European Union for any countermeasures, and Yeap believes the worst of the trade tensions are still ahead. “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 upwards move in the short term, says Yeap.
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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,” he adds.
Nasdaq in bear market territory
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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,” says Yeap.
“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,” he adds.
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 Australian Stock Exchange (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,” says Yeap.
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Expectations for aggressive US Federal Reserve rate cuts ahead seem to translate to a bigger drag on regional banking stocks, with market participants now looking for five 25 basis-point rate cuts through 2025. This is a stark contrast from the three cuts priced just a month ago.
In this environment, Singapore’s Straits Times Index (STI) appears particularly vulnerable due to its heavy banking sector exposure, says Yeap, with the recent sell-off likely to extend toward the 3,650 level following a channel breakdown.
As at 9.43am, the STI is down 266.2 points to 3,559.66 points.
For the Hang Seng Index, a “sharp catch-up reaction” is expected after its holiday break, says Yeap.
However, he notes “growing anticipation” that Chinese authorities will respond “aggressively” to US tariffs, and 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 China’s recent counter-tariffs is a strategy to gain leverage ahead of any talks,” he adds.
Charts: IG
