Singapore Markets Morning Briefing - what you need to know for Wed May 2, 2012

Positive start is expected for the STI following strong manufacturing data from the US.

IG Markets Singapore said:

Singapore traders come back from a Labour Day holiday to find a welcome burst of optimism around global markets thanks to some strong US manufacturing data.

The US purchasing managers’ index shot up to 54.8, having fallen last month to 53.4. While this headline figure is enough to revive hopes that the world’s biggest economy is still on the path to recovery, the small print reveals an even rosier picture.

The PMI data also showed that new orders were strong and inventories were lower which points to manufacturing output remaining strong in the coming months.

This positive news was a shot in the arm for US equities last night. The Dow Jones Industrial Average was up 0.5% at 13279. The S&P was 0.6% higher at 1406, while the NASDAQ added 0.1% to finish at 3050.

But traders may need more convincing that the recovery has legs, given the recent slew of downbeat economic data coming out of the US this second quarter. And there will be plenty of opportunity this week with ADP private employment data out tonight and non-farm payrolls data this Friday.

In Asia, China manufacturing data also came in firmer which helped lift spirits among investors and negate some of the negativity swirling around Europe. A 50 basis point cut in Australia’s base rate boosted the local stock market.

Commodity prices lifted with renewed hopes that a sustained global economic recovery is still achievable this year with oil one of the biggest movers. WTI crude rose 1.2% to $106.16 a barrel although Brent was unchanged at $119.36.

Oil traders are much more focused on the state of the economy rather than geopolitical tensions in the Middle East which continue to drag on. The better-than-expected manufacturing figures come after a series of disappointing data and the surprise among investors is evident across commodities and risk assets.

RBS meanwhile noted (for 1 May 2012 trading):

An initial rally turned into a bear steepening after better than expected ISM data boosted risk assets, reversed the recent trend of data misses, and took the shine off Treasury securities that have spent three days hovering near key resistances.

The initial bid was partly attributed to a rally in Gilts, and the fact that with Europe closed investors bought TY heavily as they could not buy bunds. There certainly were early block trades to support this notion. Our flows were real money 10s30s flatteners, real money paying in 5s, bank type selling in 3s and 5s, and some other real money buying in 7s.

In TIPS we saw better buying of 10s and selling of 30s early on and better selling of the belly later in the day, all from real money. There were mixed front end flows throughout the day. Total Treasury broker volume today was 115% of the 10-day average.

Today's selloff cements the technical bearish disposition for daily momentum. Tactical shorts initiated over the last few days should feel more comfortable that the correction can gain some legs, and longer term investors should continue to exhibit patience in putting cash to work.