STI set for firmer open but negative US index futures could cap gains

The index ended 0.3% higher on Tuesday after rebounding from a lower 0.9% opening.

OCBC Investment Research said:

The recovery on Wall Street overnight and positive Nikkei start (now up 0.4%) are likely to keep local sentiments fairly buoyant this morning.

However, the negative US index futures (-0.2% now) could cap the gains by the STI; the index had already ended 0.3% higher yesterday after rebounding from a lower 0.9% opening.

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

On the upside, the 2800 psychological level still pose as the initial hurdle, with the next resistance pegged at the 2830 minor peak.

IG Markets Singapore meanwhile noted:

Hopes of more monetary stimulus acted as a safety net last night to stop markets tumbling as eurozone leaders failed to inspire investors.

Bullish talk of quantitative easing from Fed Reserve Bank of Chicago President Charles Evans lifted US markets last night. The Dow Jones Industrial Average rose 1.3% while the S&P 500 and NASDAQ both gained 1.2%.

European bourses also curbed losses with hopes of more stimulus from EU policy makers. The FTSE 100 lifted 0.8% while the DAX and CAC 40 saw modest gains.

Looking at these figures, few would guess the impending doom many investors are predicting for the eurozone. The more pessimistic among us are anticipating a Greek exit followed by the likes of Spain, Italy, Ireland and anyone wanting to break free of the shackles of EU/IMF austerity measures.

But even for the more upbeat investor, confidence in a workable and accepted solution seems to be slipping away like sand in an egg timer.

The ECB has given its backing for a three-pronged attack on the crisis – increasing supervision of lenders, establishing a deposit guarantee scheme and asking for contributions from the financial industry.

But this is still some way off, unlikely to see a smooth passage of acceptance, and even then, there’s no guarantee it will do enough to restore confidence in the beleaguered eurozone.

Of more immediate concern is the Greek elections looming large on Sunday. Markets are still divided on whether this will spark a Greek exit by choice, or if the Greeks will be forced out at a later date.

Investors have taken their eye off the ball on this monumental event for the future of the European economic community, distracted by the Spanish banking bailout and Italy heading the same way as its continental neighbours.

After the Spanish bank bailout fell flat on its face, investors are beginning to grow tired of these short-term fixes and want something more substantial and long-term from policy makers.

This is clearly evident in the bond markets as Spanish bonds have now reached an euro-era high peaking at 6.8%. Obviously, €100 billion doesn’t get you very far these days.

As sentiment remained shaky last night we saw the inevitable flight to safety. Gold caught some of the safe haven tailwinds last night rising about 1% to trade at $1612 an ounce this morning.

The euro has remained resilient trading in a tight range on the $1.25 handle. IG Markets has almost two-thirds of our clients shorting the single currency.

On the energy markets oil continues to trade sideways. Opec leaders meet tomorrow to discuss supply levels with Saudi Arabia facing some tough opposition to increase output by 500,000 a day.

US Crude edged up to $83.32 while Brent has come off a little to sit at $97.11.

On the local stock market Olam may be one to watch after announcing a joint venture with a US firm to supply Canadian grain and oilseed. The commodity player has seen its share price shoot up more than 10% this week after announcing a share buyback programme.

The futures market is hinting at a firmer open for the STI this morning. Japanese equities have already opened higher.