Singapore Markets Morning Briefing - what you need to know for Fri May 4, 2012

A weaker open is expected for the STI following the retreat on Wall Street.

OCBC Investment Research said:

The retreat on Wall Street overnight is likely to cue the local bourse to a similar pullback this morning. The Japanese market is closed for holiday today.

As a recap, the STI turned mildly negative yesterday following Wednesday's sharp recovery; despite recovering as much as 0.2% at one point, the index reversed south to a 0.2% loss at the close.

And with the index failing its retest at the 3010 immediate resistance in the last session, we could potentially see it slipping further today in the direction of the 2946 (recent trough) support again.

Beyond the 3010 obstacle, the subsequent key resistance still lies at 3030 (various key peaks). On the downside, the next vital base is located at the 2900 key resistance-turned-support.

IG Markets Singapore meanwhile noted:

Singapore’s factory output for April showed a surprise contraction but should do little to unsettle traders as the economy is still looking resilient.

While last month’s PMI figure slipped from 50.2 to 49.7 it hid the fact that new orders rose and the core electronics sector was healthy. There are also question marks as to how closely it tracks the pharmaceutical sector – which has seen stellar growth this year.

While the figures should do little to dampen spirits among local investors, there is plenty more to worry about within the global economy.

For example, what is likely to weigh on traders’ minds this morning is more disappointing data out of the US. Last night, a report showed the key services sector slowed more than forecast leading to losses on Wall Street.

The Dow Jones Industrial Average was down 0.5% at 13207 while the S&P was 0.8% lower at 1402.
While quarter one saw a slew of upbeat economic data from the world’s biggest economy in terms of job creation, manufacturing activity and consumer confidence, the tables have turned this quarter.

Increasingly weak metrics are being released to raise serious doubts about the US economy’s recovery. One thing is for sure – if it is a recovery it is beginning to look like a snail crossing the road.

This slow stance is likely to be supported tonight with non-farm payroll data showing a much smaller increase in job creation than expected. Economists are already downgrading their estimates after Wednesday’s ADP employment numbers and last night’s slippage in the services sector.

The ECB met last night to discuss interest rates and as expected kept rates on hold. But the euro edged up against the dollar as no doveish tones were present. It currently sits at $1.315.

ECB president Mario Draghi predicts an economic recovery in the eurozone in the second half of the year. Perhaps he is privy to data we aren’t, as based on the latest manufacturing, unemployment and government debt figures an economic recovery looks a lot further down the line.

But Asia is taking a leaf out of the eurozone’s book and increasing its own emergency funds to protect against a European financial crisis. China, Japan and South Korea (known as Asean+3) are to double the size of the emergency find to S$300 billion.

On the commodities markets, oil prices have softened after a series of poor economic data from the US and Europe coupled with a big rise in US crude stocks.

With political tensions starting to ease, the spotlight has been on fundamentals to keep oil at these inflated prices. But economic data as of late has been disappointing and tonight’s non-farm payrolls figures aren’t expected to break this trend.

WTI crude has slipped 2.6% to $102.54 on growth concerns and increased inventories. Brent now trades at $116.07, which is well off the highs it saw last quarter when it was routinely trading above $125 a barrel.

In Singapore today, the local banks could be in focus. OCBC has just been named the world’s strongest bank for the second year running, according to Bloomberg Markets magazine.

DBS, Southeast Asia’s biggest bank, has announced it is to sell 500 million yuan of bonds in China today via three-year AAA-rated notes yielding 4.5%.

The quieter one of the three, UOB, will be in focus next week when it releases its Q1earnings.

The futures market points to a weaker open for the STI this morning as its 3000 level status is likely to come under pressure.