Singapore Markets Morning Briefing - what you need to know for Fri Feb 10, 2012

Nikkei suffers weak start while modest gains are reported on Wall Street.

OCBC Investment Research said:

The modest gains on Wall Street overnight and a weak Nikkei start (-0.3% now) are unlikely to provide much inspiration to the local bourse this morning.

As such, the STI which ended flat yesterday, could continue to consolidate around current levels today.

At the moment, 3000 key psychological resistance is still the toughest obstacle to overcome in the near term. The subsequent resistance is pegged at the 3070 support-turned-resistance.

On the downside, the 2931-2939 gap support is still the initial base to watch out for, with the subsequent support at 2874 (recent trough).

Meanwhile RBS noted:

EUR/USD received a slight boost from the ECB press conference and reached a high during the session of 1.3322 before settling into a narrow range for the rest of the session. Several other USD pairs also were relatively rangebound with the notable exception of USD/JPY.

USD/JPY steadily moved higher and hit an intraday peak of 77.73 and remains near that level at the time of writing. USD /JPY has climbed significantly above the level implied by the 5-year swap rate spread and could suggest that the BOJ is conducting more "stealth intervention."

Accordingly, we remain reluctant to chase USD/JPY higher at current levels and recommended taking profit in our long CAD/JPY exposure at 78.05, realizing a 3.1% gain (including carry) from the initial recommendation at 75.75 on 5 January.

GFT, on the other hand, reported:

After months of anticipation, the Greeks finally got their act together and agreed to all of the Trioka’s harsh austerity measures but unfortunately it was not enough. The announcement of a Greek deal should have had a big impact on the EUR/USD but the currency pair’s gains were limited by the amount of the concerns from the IMF and other Eurozone nations.

Rather than applauding the breakthrough by the Greeks, European leaders spent most of their airtime expressing skepticism. The problem is that Greece has not provided sufficient information to assure creditors that their deficit reduction targets can be met and therefore it has been impossible for Euro area Finance Ministers to make a quick decision on releasing aid.

The IMF in particular is worried about any potential changes in economic policies if a new leader is chosen in the April elections. They also want Greece to implement plans that they pledged in return for the first bailout payments before providing additional financing. Eurozone nations who had already been reluctant about greater financial commitments were quick to signal that if the IMF doesn’t have faith in Greece, neither do they.

Germany’s Finance Minister said that the Greek deal on spending cuts is “insufficient” because their plans to cut spending are not enough to fulfill bailout conditions. Ireland’s Finance Minister also agreed that there are “gaps” in the “logic” of the Greek deal and so he cannot say that a deal has been completed.

The IMF appears to share this view according to Gerry Rice, the head of IMF communication who said the next step is to continue discussions with the Greek authorities and European partners on the overall program. Other countries such as Austria also want to see the implementation of the first package before approving a second.

With so much opposition, an immediate endorsement of Eurozone Finance Ministers appears unlikely and an approval by the German Parliament is far from a done deal. Rather than diminishing the uncertainty, the Greek deal raised more questions and highlighted the amount of hurdles that need to be overcome for Greece to avoid a default.

The price action of the EUR/USD suggests that even though investors may be nervous, they remain optimistic that everything will be sorted out by March 20th because no one wants to witness a Greek default. In the meantime, expect the Greek debt deal to continue to dominate the headlines and the market’s appetite for euros over the next 24 hours.