Singapore Markets Morning Briefing - what you need to know for Tues March 6, 2012

There’s bad news from overseas amidst weakness on Wall Street and a not-so-good Nikkei start.

OCBC Investment Research said:

Renewed weakness on Wall Street and a muted Nikkei start are likely to weigh further on the local bourse this morning.

The STI, which slipped 0.1% yesterday, while off intraday 2983 low, could continue to ease towards 2950 (30-day moving average); but we expect 2931 (23.6% retracement of rally from 2606 to 3031) to hold.

As before, daily technical indicators have been looking mildly negative for a while – the MACD has been negative since 21 Feb and that was when the index hit the YTD high of 3031.

We continue to peg 3000 as the initial cap, ahead of 3011 (where the STI could trigger a bullish parabolic buy signal).

IG Markets Singapore meanwhile noted:

THE STI will hope to bounce back from China’s lower GDP thunderbolt yesterday, after a welcome boost from the manufacturing sector.

PMI figures released last night show that manufacturing expanded for the first time in seven months - a positive sign that the economy is turning the corner. While the economy is not out of the operating theatre yet it is still showing good signs of recovery.

The local market may also be buoyed by better-than-expected economic data out of the US which shows its all-important services industry is also expanding. The services industry makes up a staggering 90% of the US economy.

Although another step in the right direction it did little to spark life into equity markets. The Dow Jones Industrial Average ended flat, the S&P dropped 0.3% while NASDAQ fell 0.4%.

It seems traders were more concerned with the negative noise coming out of China as it lowers its growth estimates for the year ahead, rather than a strengthening US economy. While the economic balance of power still sits with the US for the time being, China’s growth engine can still rock the boat when it starts to splutter.

Asian markets will have plenty of overnight data to digest in today’s trading session along with assessing the headline risks that are looming on the horizon.

RBS, on the other hand, reported (for 5 March 2012 trading):

Treasuries put in a quiet session and a 4bp range despite decent moves in equities and other risk assets.

"Growth" trades were put on notice overnight when China downgraded their annual growth target for the first time since 2005, from 8% to 7.5%. For example, copper and aluminum fell approximately -1% today, and global equity exchanges posted similarly modest pullbacks.

Our NY flows were modest, with some macro buying of 10s, domestic selling in 10s, and central bank buying in 3s. The day was truly dominated by the corporate bond market, where ~$16bn in IG and ~$4bn in HY deals were priced.

To put this in perspective, all of February saw ~$131bn in IG bonds priced. A healthy issuance day indeed! Total Treasury broker volume today was 84% of the 10-day average.