Singapore Markets Morning Briefing - what you need to know for Wed May 9, 2012

Weaker open is expected for the STI amidst fears of a eurozone meltdown.

OCBC Investment Research said:

The renewed EU concerns are also likely to weigh on local sentiment this morning; the Nikkei is already down 1.2% at the moment.

With the index losing most of its earlier gains yesterday to close just 0.2% in the black, the modest rebound looks to be nothing more than a dead cat bounce.

And with the index unable to sustain itself above the 3000 level, we could more downside risk in the near term.

While we expect some buying interest to emerge around 2900, investors would also be watching on how the rest of Asia would open later.

Below 2900, the next support is likely found around 2850.

IG Markets Singapore meanwhile noted:

The dark clouds of a eurozone meltdown are likely to drift back onto the Asian horizon today as talk grows of a Greek exit.

The failure to secure a Greek coalition government that would push ahead with the agreed austerity measures spooked Asian markets on Monday and led to big falls across regional markets. The STI dropped more than 2%, its biggest fall since last November.

We could be in for a repeat performance today as Greece’s left-wing political party talked of ripping up its “barbarous” austerity programme which underpinned its second bailout package.

This battle cry sent European markets in a tailspin as risk-on trading ran for cover. The CAC 40 plummeted 2.8%, the DAX dropped 1.9% while the FTSE 100 fell 1.8%.

Wall Street also felt the cold winds of eurozone meltdown blow across the Atlantic.

The Dow Jones Industrial Average was down 0.6% while the S&P 500 and NASDAQ both ended 0.4% lower.

The markets seem to already be pricing in a messy Greek exit and don’t hold much hope of a resolution being reached with such defiant talk of reneging on the IMF/EU deal. The left-wing party secured the second highest number of votes at the weekend and are likely to play a major part in the new Greek parliament.

So all the efforts to rescue Greece with two bailout packages and secure funding after months of tense negotiations look like they might come undone like a badly knitted jumper.

Some observers are putting the chances of a Greek exit from the euro at 90%. Whatever percentages you are working on the damage has already been done to Greece with regards to its international reputation.

It’s not the fact that Greece might exit the euro that is causing concern but the wider effect on the eurozone and further fallouts, particularly from peripheral economies.

And the Greek resistance sends out a very unhealthy message to these members that running away from your debts is a viable option instead of signing up to a tough and unpopular austerity measures.