Singapore Markets Morning Briefing - what you need to know for Thurs Feb 9, 2012

Good Wall Street news offers some positivity to today's trading.

OCBC Investment Research said:

The further recovery on Wall Street overnight is likely to cue the local bourse to a positive start this morning although the mildly negative Nikkei (-0.4% now) could limit the gains.

As a recap, the STI trended higher to another 0.8% gain at the close yesterday as investors continued to pick up more shares on the improving sentiments.

And with today's outlook likely to remain more upside biased, we could see the index reaching higher to test the 3000 key psychological resistance very soon.

Above 3000, the next resistance lies around 3070 (support-turned-resistance).

On the downside, the 2931-2939 gap support is still the initial base to watch out for, with the subsequent support at 2874 (recent trough).

GFT, on the other hand, reported:

The U.S. dollar strengthened against all of the major currencies today despite a warning by Standard & Poor’s that the U.S. credit rating could be lowered again in the next 6 to 24 months if a medium term fiscal plan is not developed.

Political gridlock in Washington and opposition to raising the debt ceiling last year prompted S&P to strip the U.S. of its prized AAA rating in August. If the winner of the November elections fails to come up with a credible plan to reduce the deficit, the U.S. could face another downgrade by S&P and/or a follow up move by Fitch and Moody’s.

No U.S. economic data was released today but according to Federal Reserve President Williams who is a voting member of the FOMC this year, the Fed may need to increase asset purchases if growth falters. He believes that there is limited headroom to buy Treasuries but there is room for purchases of mortgage bonds.

Like Bernanke, he does not buy the recent improvement in the labor market. Instead, he believes that the unemployment rate will exceed 8 percent into 2013 and be well over 7 percent by the end of 2014.

Meanwhile RBS noted:

Our European trader called it "quietest day of the year and it very much feels like the calm before the storm." While I wouldn't quantify today's Treasury activity as the quietest day of the year, it was certainly a day of stability for asset prices, as we await more news on Greece (again), and as the Treasury placed $24bn shiny new 10yr notes without much of an issue.

While flows in Europe were on the light side, in Treasuries our larger flows were on the sell-side: leveraged selling in 5s, 10s, and 30s and real money selling in 10s and 30s. We also had some foreign selling in 5s and central bank selling in 10s.

The swaps desk had early insurance receiving in the long end as well as paying from servicers and rate lock unwinds, and we had some spec buying in 10yr and 30yr futures. Total Treasury broker volume today was 72% of the 10-day average.