Investors flee equities amidst panic; Facebook stock priced at $38 a share

In local trading, a very weak open is expected for the STI following losses in global markets.

IG Markets Singapore said:

Those canny traders who followed the old adage of selling in May and going away will be smugly smiling while investors still in risk assets are crying tears of deep despair as global markets took another pounding last night.

We saw more panicked investors fleeing equities yesterday as Spanish banks suffered another downgrade while Greek banks face a run on deposits from worried customers.

Spanish yields are also on the high side at 6.42% as a crisis of confidence grows like a disease across Europe. Sentiment wasn’t helped by weaker US data, which had previously been the only source of hope for a global economic recovery.

There was a surprise deterioration in the Philadelphia Fed manufacturing index while jobless claims numbers were unchanged.

A stagnating eurozone possibly on the verge of imploding, a Chinese economy still slowing down and a US recovery on the ropes doesn’t make a pretty global economic landscape.

Last night on Wall Street the Dow Jones Industrial Average was down 1.2% at 12442. The S&P was 1.5% lower at 1305, while the NASDAQ retreated 2.1% to close at 2814.

In Europe, the FTSE 100, DAX and CAC 40 all fell 1.2%, sharing the pain of the continued sell-off.

There is the faint hope that global markets have priced in much of the downside risk of a Greek exit which may be true. But while the consequences for the rest of the eurozone remain unknown, there is plenty more that markets can fall. Bad news for risk assets, good news for safe havens.

However, the pain trade is getting more painful. As investors run panic-stricken into safe-haven favourites of US treasuries and German bunds they are pushing yields down even further. With inflation high in most developed nations investors are seeing their capital eroded while sitting helplessly on the side lines.

There were a couple of welcome distractions last night. Facebook’s stock was priced at $38 a share ahead of its much-anticipated NASDAQ listing today.

While it has already made mega rich men out of its founders and backer, it is still early days for its retail investors. We could see the share price spike as those investors who missed out on the IPO clamber to get on board.

Linkedin, the next best example of a social media site going public, floated last May. With an IPO price of $45, the stock is now valued at above $100 a share. Interestingly, Linkedin shares tumbled 7.5% last night.

There is a local angle to the Facebook IPO as its co-founder Eduardo Saverin has now relocated to Singapore. While many thought his decision to denounce his US citizenship was less about politics and more about tax breaks this may not be the case.

He will still have to pay "hundreds of millions of dollars in taxes to the United States government”.

The other distraction was seeing gold start to shake off the cobwebs as the precious metal rallied more than 2% from the recent lows. It now trades at $1575 an ounce.

RBS meanwhile noted (for 17 May 2012 trading):

Yields were slightly higher to start the day but the combination of ongoing European dismay, a surprisingly weak Philly Fed number, and a very strong TIPS auction all boosted Treasuries into the afternoon and the close.

Equities got a small boost from the new Greek polling data, but it was a bit short lived as stocks once again folded in the afternoon. The long end continues to be in focus as bad steepeners (remember all the street steepener recommendations at 118bp due to looming end of Twist a few weeks ago?) and exotic related pressures continue to cause bonds to race lower in yield.

There's also a lot of talk of conditional steepener unwinds in the market. 10yrs are now in spitting distance of the record low of 1.67% - reached in Feb 1946 and Sept 2011. We saw real money buying of 7s, real money buying of the front end, flattener trades going through, and leveraged and real money selling of 30s.

In swaps, we say insurance companies put on steepeners and receive 5s outright, real money paying in 10s, bank selling of 2yr spreads, real money paying in 3s and 5s, and a corporate receiving in 5s. Total Treasury broker volume today was 130% of the 10-day average.