STI falls for second consecutive session with 0.5% loss

Firmer open is expected though as policy-easing hopes lift the mood across global markets, says IG Markets Singapore.

OCBC Investment Research said:

The rebound on Wall Street overnight and the mildly higher Nikkei 225 index (up 0.2% now) are likely to inspire the local bourse to a positive opening this morning.

As a recap, the STI slipped for the second consecutive session yesterday with a 0.5% loss after failing to overcome the 2800 resistance recently.

But as sentiment could continue to remain cautious ahead of the election in Greece this weekend, 2800 could remain a stiff resistance to clear in the near term.

Meanwhile, we still see the immediate support at around 2735 (minor trough), with the subsequent base lying at the 2700 level (major trough in Jun '12).

IG Markets Singapore meanwhile noted:

Spain is politely waiting in the wings to become the next nation in crisis once Greece leaves centre stage.

The problem is Greece is in no hurry to step out of the limelight having hogged it for so long with its faltering economy, successive bailout rescues, failed elections and crippling government debt.

While markets have been preoccupied by the near Greek tragedy, bigger problems have been creeping up the agenda on the eurozone danger list. Spain is making a very strong case to top the list.

Having seen widespread downgradings of it banks and economy and a €100 billion bailout package the Spanish pain continues with another downgrading by Moodys which leaves its borrowing costs above 7%.

With Italy not far behind, markets can’t breathe a sigh of relief even if the Greek election sees a pro-bailout government elected.

Angela Merkel has talked about Europe being in a race with the markets. It looks like European leaders have stopped for a water break and some in-fighting while the markets sprint ahead of them.

This made for a weak session across European bourses as investors looked dimly on the lack of clear direction from policymakers.

Ironically the Athens stock market was up 10% on speculation that pro-bailout parties were gaining ground and the EU was ready to renegotiate the terms of the second bailout package.

Wall Street was on the receiving end of more poor data last night with disappointing jobless claims following on from weak retail sales on Wednesday.

But the talk on trading floors is growing that monetary policy easing will be urgently required to try to get the US economy back on track. This lifted US markets yesterday with the S&P 500 rising 1.1%.

The Dow Jones Industrial Average rose 1.2% while the NASDAQ gained 0.5%. These hopes of cheap liquidity are likely to lead to an upbeat Asian session today.

Although as we head into the last trading session before the Greeks head to the polls, investors are easing out of risk assets. The elections could be a defining moment for the eurozone, a crossroads for its future depending on how the Greeks vote this weekend.

Central banks and European policymakers are taking no chances and are positioning themselves for a worst case scenario that sees Greece hastily exit the eurozone. Expect the unexpected.