Singapore Markets Morning Briefing - what you need to know for Thurs April 5, 2012
Thursday is not looking good for the STI with Japan and Australian stock markets opening weaker amidst Wall Street and European declines.
IG Markets Singapore said:
While it may be Good Friday tomorrow it is shaping up to be Bad Thursday today after another night of heavy selling from liquidity-starved traders.
The downplaying of QE3 in Tuesday night’s Fed minutes is still having reverberations across US markets with the Dow Jones Industrial Average and the S&P 500 both suffering falls of 1%.
The NASDAQ fared even worse dropping 1.5% last night. It seems traders were thinking they could have their cake and eat it – enjoy a global economic recovery while central banks continued to flood the markets with cheap money.
But European traders have sweeter teeth judging by how far markets tumbled. The FTSE plummeted 2.3% while the DAX dropped 2.8% as traders slipped out the back door taking their 2012 rally profits with them.
This heavy selloff leaves observers wondering just how much of this year’s rally was driven by liquidity, and hopes of further central bank largesse, rather than a recovering global economy and the eurozone contagion being contained.
While equity markets took a pummelling gold fell 1.5% to $1,620 as it was likely to be one of the main beneficiaries of QE3 funding. This is its lowest level since January and could question the bullish outlook for the precious metal.
One retreat that can't be questioned is that of oil prices which fell by a not insignificant amount. US crude dropped 2.4% to $101.47 a barrel while Brent dipped to $122.45.
US crude stockpiles have risen by their biggest amount in more than 10 years while extra production is coming from Saudi Arabia, Russia, Libya and Iraq. Plus with growing talk of the release of strategic supplies it is clear supply side issue are being addressed.
What is less clear is how tight supply has actually been during this Middle Eastern crisis which led to oil prices rising so high. Speculation and panic have played a significant part in oil’s recent rally.
Assets linked to growth all had a tough night with copper falling 3.3% to $3.79 a pound, silver dropping 4% to $31.32. while the Australian dollar also fell.
The Eurozone crisis has crept back onto the agenda after Spain’s poor take-up of government bonds last night. As a consequence yields had to rise to get enough investors to buy the paper.
All this negativity bodes badly for the STI which retreated 1% yesterday. After Wall Street and European declines we expect to see more copycat reactions from Asian traders.
Already Japan and Australian stock markets have opened weaker this morning.
OCBC Investment Research meanwhile noted:
The more than 1% correction on Wall Street overnight and the poor Nikkei start (-0.8% now) are likely to spook the local bourse to a negative opening as well this morning.
The STI had shown further signs of weaknesses yesterday after breaching its 3-month uptrend support; following a 0.2% lower opening, the index retreated to a 1% loss by the close.
And with today's tone likely to remain largely pessimistic, we could see the index breaking the 2975 immediate base (recent trough) before slipping further in the direction of the 2900 key resistance-turned-support.
On the upside, 3030 remains the vital resistance to overcome in the near term, with the next obstacle pegged at the 3075 support-turned-resistance.
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