Singapore Markets Morning Briefing - what you need to know for Wed March 21, 2012

Bad economic news from China dragged trading both in Europe and the US.

IG Markets Singapore said:

The STI could be in for a choppy day of trading today after a disappointing night across Europe and Wall Street spurred by China’s fuel price hike and commodity-consumption slowdown.

Attention has now well and truly swung towards China which can be labelled “the new Europe” as it now the main source of bad economic news and trader concerns.

While an IMF official this week ruled out a hard landing for China, others are not so sure after more cracks appeared in its supposedly managed slowdown. Yesterday BHP Billiton said it was seeing signs of a “flattening” iron ore demand from China as the economy continues to cool.

US markets came off four-year highs, as risk appetite slumped. Among the major averages, the Dow Jones Industrial Average was down 0.5% at 13170. The S&P was 0.3% lower at 1406 and the NASDAQ shed 0.1% to finish at 3074.

European markets had an even tougher session with the FTSE, CAC and DAX all slumping over 1% each.

RBS meanwhile noted (for 20 March 2012 trading):

The "rally" in 10s belies the tone of the market, which remains poor. 10yr yields at their best were at 2.33% (almost 5bps lower in yield on the day), but were unable to sustain the bid. This, despite lower equities, and lower commodities after an overnight of Chinese growth concerns.

In sum, just about everything was down: bonds, stocks, and commodities. There are glimmers of positives however – for while unable to sustain a rally neither did the market break down when 5yr yields moved above their key 1.20% level.

We heard of stops (mostly futures) when this occurred but a relatively tame move occurred and 5yrs subsequently fell back below 1.20%. The price action speaks of a potential balance in the market, at key supports and with the market in the short term quite oversold.

We always prefer to see momentum turn bullishly before sounding the all clear, so for another day we watch the market and tenuously hold to the belief that a fundamental change has not taken place, and the market is in the process of tracing out its higher rate range which will hold for the next few weeks.

OCBC Investment Research, on the other hand, reported:

The correction on Wall Street overnight and the poor Nikkei start (-0.3% now) are likely to dent local sentiments this morning.

Following the relatively sharp correction from the 3030 resistance on Monday, the STI initiated a mild technical rebound yesterday. After opening 0.4% higher, the index consolidated around that region before ending the day at its opening value.

But with today's tone likely to deteriorate again, we could see the index continuing its slide in the direction of the 2960 minor trough.

Below that, we still see the key base at the 2900 (key resistance-turned-support). On the upside, 3030 remains the firm immediate key obstacle to overcome, followed by the subsequent resistance at 3065 (trough in Jul '11).