Singapore Markets Morning Briefing - what you need to know for Wed March 7, 2012

US and Europe suffered heavy losses overnight.

OCBC Investment Research said:

The sharp retreat on Wall Street is likely to weigh further on the local bourse this morning.

The STI, which already fell by 2% yesterday, could retreat further to test the 2900 support; although it did managed to close above 2931 (23.6% retracement of rally from 2606 to 3031).

And if 2900 gives way, the index could ease to around 2869 (38.2% retracement level).

Besides the daily MACD still looking quite bearish, we note that both the RSI and stochastics suggest that the market is not yet oversold; hence bargain hunting may not be advisable yet.

We now peg the initial cap at 2959 (30-day moving average) ahead of the key psychological 3000 level.

IG Markets Singapore meanwhile noted:

It looks like the party is over for 2012’s early-year rally buoyed by cheap money and improving economic conditions. Asia led the bears into action yesterday while the US and Europe followed suit last night suffering heavy losses.

The STI shed 2% yesterday and traders will be assuming the brace position today as another bumpy ride looks likely. The US saw the Dow Jones Industrial Average drop 1.6% while the S&P 500 fell 1.5%, its biggest daily loss this year. Super Tuesday it was not.

Worries over China’s growth prospects and fears of Greek’s bailout package not being taken up by private bondholders were too much to take for the markets which are today nursing severe hangovers.

In Europe the FTSE 100 dropped 1.9% while the DAX plummeted 3.4%. Growth for the eurozone fell by 0.3% in Q4 2011 as it slips closer to recession, bringing down hopes of a global recovery with it.

Ironically, one of the few markets to end up posting gains among a sea of red was the Greek stock market – the Athens stock exchange ended up 2.8%.

Rumours that Greece may have to extend its deadline beyond Thursday to round up more investors are likely to keep nervous traders at bay this week. However, the last thing European leaders want is to bring uncertainty back into the markets so they are likely to push hard to meet the deadline.

RBS, on the other hand, reported (for 6 March 2012 trading):

Even with the strong rally in Treasuries, 10yr yields are closing at the mid-point of the 1.80-2.10% range (again). Unfortunately, we are the tail of the dog at the moment, though all signs point to a wag lower in yields.

Our flows were leveraged buying of 10s, central bank selling of the front end, and into the rally better selling from domestic and foreign real money in the belly (not huge). Our swaps desk reported overall mixed flows, and in TIPS we saw two-way flow in the front end and better buying of 5s and out (mostly real money, some fast money).

Total Treasury broker volume today was 87% of the 10-day average.