STI sinks 2% after frantic sell-off

Negative trading erupts under a swathe of bad news from poor US employment figures to political instability in Europe.

Investors recoiled at the weak performance of US non-farm payrolls data, which suggests a slower recovery pace, and startling results from the French presidency and Greek parliamentary elections.

These drove the STI further down to 2925, wiping recent gains, with Singapore's biggest stocks like CapitaLand and Sembcorp Industries taking the worst of the pummeling.

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It may not have been Black Monday across Asian markets today but it was certainly a dark shade of grey. The STI lost more than 2% of its value, wiping off 65 points and leaving it down at 2925.

Traders were brutal in the sell-off as a three-pronged attack struck the market. Disappointing US employment numbers, a dethroning of the French president and a Greek parliamentary ousting left investors scrambling around like headless chickens.

Markets were already gearing up for a weaker start after Friday night’s poor non-farm payrolls data added further fuel to the fire that the US economy is not in recovery mode after all.

The US economy added 115,000 jobs in April, which was well below expectations of around the 160,000 mark. The dip in the unemployment rate to 8.1% should not obscure the drop in the labour force participation rate to 63.6%, the lowest since December 1981. Moreover, the flat readings for average hourly earnings and the workweek will only magnify fears that growth momentum will slow ahead, keeping the QE door open and the downward pressure on the dollar.

Then this morning Asia woke up to discover Sarkozy had been toppled by a Socialist Party victory and a Greek coalition government in tatters as it failed miserably at the polls.

The dust is still settling on what this all means for the eurozone but it doesn’t look good. France’s new president Hollande is already talking about less austerity measures and higher taxes on banks and oil companies.

Meanwhile any new Greek government, once it is formed out of the various incoming parties, is likely to show resistance to the terms of the EU/IMF bailout agreement which took so long to secure.

How radical it will be in determining Greece’s future participation in the eurozone is also unclear. Considering a neo-Nazi party (whose manifesto includes deporting illegal immigrants and placing land mines on the Greek/Turkish border) gained 7% of the vote, nothing can be ruled out.

Among the STI’s sea of red, Singapore’s biggest stocks were the worst hit. CapitaLand lost 5.4%, Hongkong Land slipped 5%, while Sembcorp Industries lost 4.1%.

UOB, which has already seen its share price slide ahead of announcing its Q1 earnings on Wednesday, lost 4.4% just off the low’s for today. Risk assets were already on the floor after last week’s concerns over a tepid economic recovery amid the weak manufacturing data. The weekend’s economic and political developments saw risk assets quickly fall through this floor.

Among the commodities, WTI and Brent were perhaps the most volatile, with both trading through their 200-day moving average for the first time since December and January respectively.

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Tags: Singapore markets, STI, US employment numbers, IG Markets