Singapore Markets Morning Briefing - what you need to know for Tues March 20, 2012

Bullish market sentiment in the US could help see the STI recover after dropping below 3,000.

IG Markets Singapore said:

The STI fell off the bull yesterday dropping below 3,000 but will get another chance today with more bullish market sentiment coming out of the US.

Last night US stocks added to last week’s solid gains with Apple’s surprise announcement that it will be paying dividends and buying back shares. The stock is definitely the apple of traders’ eyes and shot up to $600. UPS’s planned takeover of TNT also added to the optimism that the US economy is stirring back into life.

Add in data showing US home-builder sentiment has hit its highest level in almost five years and you can see why the bulls are gathering pace.

But the local market still seems to be showing nervousness at jumping feet-first into the cool waters of this fresh economic optimism. Having lasted three days above 3,000 last week it finally capitulated in Monday’s trading despite a strong start as profit-taking and caution about China’s engineered slowdown took hold.

While Europe is clearly not out of hospital yet, most observers believe the days in the accident and emergency ward are over for the time being. While a messy multi-country default looks less likely, the number one concern is now oil.

Meanwhile GFT noted (for 19 March 2012 trading):

In a perfect world, currencies, equities and bonds will move in unison, telling the same story about the market’s outlook for the U.S. economy. Today U.S. equities rose to its highest level in more than 3 years while the 10 year bond yield climbed to its highest in 4 months and yet the dollar weakened.

This inconsistent performance in the greenback confirms that the currency has become extremely overbought and indicates that investors need more than a slight push higher in U.S. equities to continue to buy dollars at these lofty levels.

With no major U.S. economic data on the calendar, the rise in stocks was fueled largely by the market’s enthusiasm about Apple, who announced its first ever quarterly dividend and stock buyback program. The NAHB housing market index which measures builders’ sentiment held steady at 28 in March and holding near its 5 year high reflects more strength than weakness in the U.S. housing market.

However what everyone has ignored is the rise in oil. WTI Crude traded above $108 a barrel, driving the average price for a gallon of gasoline higher for the 10th consecutive trading day. Although the average price is still 6.6 percent below the record high, every penny that gas prices go up is a penny less a car driving American has to spend on discretionary goods.

In more significant terms, each 50 cent increase in the average price per gallon adds approximately $600 billion to annual consumer bills. The rise in stocks and the rise in yields lead many to wonder if investors are ignoring rising oil prices at their own peril.

OCBC Invetsment Research, on the other hand, reported:

The mostly muted reactions on Wall Street overnight and the flat Nikkei start (+0.1% now) are likely to cue the local bourse to a similar opening as well this morning.

Despite the early push to retest the 3030 resistance yesterday with a 0.6% higher opening, the STI gave up all its gains to end the day nearly 0.7% in the red.

And with today's tone unlikely to show any significant improvement, we could possibly see the index consolidating around current levels with 3030 firmly marked as the immediate key obstacle to overcome in the near term.

Beyond that, the subsequent resistance is pegged at 3065 (minor trough in Jul '11). On the downside, 2900 (key resistance-turned-support) is still the vital base for the index, with the subsequent support seen at 2875 (minor trough in Jan '12).