STI closes with 1.1% loss

Tone for 24 July 2012 is unlikely to show any significant improvements, says OCBC Investment Research, with the index forecast to drift in the direction of the 2930 immediate base.

OCBC Investment Research said:

The continued retreat on Wall Street overnight and the negative Nikkei start (down 0.1% now) are likely to keep the local bourse on the back foot this morning.

As a recap, the STI picked up on its downside momentum yesterday with a 0.5% lower opening, before slipping further to a 1.1% loss by the close.

And with today's tone unlikely to show any significant improvements, we could see the index drifting in the direction of the 2930 immediate base (minor trough).

Below that, the subsequent base is marked at the 2900 key resistance-turned-support. On the upside, 3000 psychological level is now the newly established obstacle, with the next resistance pegged at the 3040 recent peak.

IG Markets Singapore meanwhile noted:

In Asia today we have some potentially game-changing data with China flash PMI data out this morning.

China’s Q2 GDP slowed to a three-year low to hit 7.6% and any data after this point may reveal if we are seeing a bottoming out or more pain to come.

We are seeing tweaks around the edges with a few cuts and snips here and there by the PBOC but is enough being done? Perhaps a better question is can we trust the data that the government releases?

This is the current trader floor talk after the Libor scandal highlighted how easy it is to manipulate numbers to serve a purpose. Although, to be fair question marks have always hung over the accuracy of China-inspired data.

June’s PMI data showed further contraction with the index hitting a seven-month low of 48.1 compared to May’s 48.4. Further contraction could see Asian bourses wobble today while an improvement may do little to improve sentiment.

While these figures are important, what may give a truer picture of the health of the Chinese economy are new loans figures released at the start of August. June lending was very strong (rising 16%) and suggested the Government’s bank rate cuts were filtering through to the wider economy.

July figures will show if this was just a flash in the pan or part of a sustained growth in bank lending. So we could continue to see weak PMI data for a month or so more with hope for an improvement well into the second half of the year.

Despite the turmoil across the eurozone, the futures market is pointing to a slightly firmer opening for the STI. While the local market has been very resilient during this year, its patience continues to be tested by the likes of Greece and Spain.