Singapore Markets Morning Briefing - what you need to know for Thurs Jan 26, 2012

Looks like a positive opening awaits the local bourse.

OCBC Investment Research said:

The recovery on Wall Street overnight is likely to cue the local bourse to a positive opening this morning.

Following Wednesday's 1.4% surge, the STI marched on strongly yesterday; it gapped up nearly 0.5% at the open before rallying to a 1.5% higher close.

And with today's tone likely to remain more upside biased, we could see the index inching towards the vital resistance at around 2910 (key support-turned-resistance and 200-DMA) for a test; however, it is likely that the index could face fairly strong selling pressure near this region.

Beyond that, the subsequent obstacle can be found at the 3000 key psychological level. On the downside, the immediate support is now pegged at the 2852-2860 (gap support formed yesterday), with the subsequent base marked at the 2793 resistance-turned-support.

Meanwhile RBS noted:

The USD sold off sharply against the G10 after the FOMC elected to extend the guidance on the Fed funds rate, and now expects an exceptionally low Fed funds rate through late 2014 at least. EUR/USD traded to above 1.31 during the afternoon after falling to below 1.2950 as NY walked in this morning, breaking above the key resistance level 1.3080 (previous 2011 high) and the 50-day moving average at 1.3095.

We wrote in Global Currency Weekly that we expect the short EUR squeeze to continue and while we retain a negative outlook, would be hesitant to re-enter EUR shorts at these levels. The FOMC statement also seemed to lean dovish and state the case for additional QE, which propelled the commodity currencies, US Equities and gold to close near their highs of the session.

While we do expect additional Fed QE in around mid-year, relatively the ECB and BoE are likely to resume balance sheet expansion during February (RBS forecasts MPC initiates QE in February and the ECB holds its second 3-year LTRO operation 29 February), which should limit upside for EUR and GBP over the near-term.

GFT, on the other hand, said:

All the commodity currencies strengthened against the U.S. dollar today as risk appetite improved. Australia’s core inflation rate accelerated above the middle of the central bank’s 2 percent to 3 percent annual target range last quarter.

As a result, traders pared bets on another interest-rate reduction next month. The trimmed mean consumer price index advanced to 2.6 percent from the third quarter, when it rose to a revised 2.4 percent.

European debt troubles remain a possible catalyst for another interest rate cut later down the road as inflation figures don’t seem to warrant back-to-back cuts. The Reserve Bank of New Zealand announced today that it is keeping its official cash rate unchanged at 2.5 percent.

Since the last central bank meeting financial market sentiment has slightly improved, however, concerns about global growth still loom. Reserve Bank Governor Alan Bollard noted that exports have remained elevated, but the appreciation in the New Zealand dollar is cutting into exporters’ profits.

As for the economic outlook, the central bank sees a modest recovery in household spending and the housing market. Furthermore, repairs and reconstruction in Canterbury will provide a material boost for the economy. Inflation in the New Zealand economy remains well contained and is not a concern at the moment.