Singapore Markets Morning Briefing - what you need to know for Wed April 4, 2012

The STI fell short to overcome the 3030 point, and on Wall Street the S&P 500 dropped 0.4% while the Dow Jones Industrial Average fell 0.5%.

OCBC Investment Research said:

The correction on Wall Street overnight and the flat Nikkei start are unlikely to provide any inspiration to the local bourse this morning.

As a recap, the STI attempted again to overcome the 3030 key obstacle yesterday but fell short by the end of the session; despite recovering more than 0.5% at one point, the index gave up its earlier gains to close barely flat.

And with today's tone likely to remain as muted, we could see the index consolidating further around current levels with 3030 still being the vital resistance to overcome in the near term.

Beyond that, the subsequent obstacle is pegged at the 3075 support-turned-resistance. On the downside, we still see the immediate base at 2975 (recent trough), followed by the next support the 2900 key resistance-turned-support.

IG Markets Singapore meanwhile noted:

The markets reacted to fading hopes of QE3 like a petulant child does when their favourite toy is confiscated. The sulk led to falls on Wall Street with the S&P 500 slipping 0.4% while the Dow Jones Industrial Average dropped 0.5%.

Fed minutes revealed that only two out the 10 members felt quantitative easing “could become necessary” if the economic outlook weakens.

The disappointment led to a sharp rise in the dollar, and widespread sell-offs in gold and commodities. European stocks also suffered a pullback.

Gold futures dropped to $1648 an ounce just as the precious metal was struggling to recover from last month’s dip, again after a Fed announcement that dashed hopes of QE3. Traders should see this further softening as another buying opportunity as the bullish sentiment remains.

A total of 84% of IG Markets’ clients have taken long positions on gold. Many traders still have $2000-plus an ounce within their sights for year-end.

Oil has also come off a little as speculation of a strategic release of emergency oil reserves gathers pace. But the International Energy Agency (IEA) has been sending out mixed messages about how tight supply is right now, and how it will be affected when Iran is cut off.

While some IEA members are downplaying the Iranian crisis, others now seem to be actively preparing to release emergency stocks to ease supposedly tight supplies. There is also the big question of whether the IEA can legally use countries’ stockpiles if there’s no serious disruption to world supplies.

WTI crude has slipped 1.2% to $104.01 a barrel while Brent sits 0.5% down at $124.98.

Asian markets are likely to have a weaker start following the Fed minutes and Wall Street’s reaction. It may take some time for traders to acknowledge that fading QE3 means US policymakers feel confident the economy will recover and needs no further stimulus, which is a positive sign of a global economic recovery taking shape and less need for artificial liquidity.

But watching the US economy recover is like watching a tortoise cross the street. Painfully slow and with plenty of hazards with each passing car, or in this case with each new release of economic data.

Friday’s non-farms payroll data will show just how fast, or slow, employment is picking up which has so far been the main cause of the optimism.

In Singapore today DBS could warrant more attention after seeing its share price slip 2.7% yesterday after investors reacted badly to plans to buy Danamon. Many feel DBS may have overpaid for the Indonesian bank.

It now faces pressure from Indonesian lawmakers unhappy about a foreign bank taking over one of its biggest local lenders.

But there could be some support for the local market with data showing Singapore’s manufacturing sector expanded for the second consecutive month. The electronics sector has also seen a pick-up, although generally factory output has dipped slightly, according to the Purchasing Managers’ Index (PMI).