Singapore Markets Morning Briefing - what you need to know for Thurs March 29, 2012

Softer open for the STI is expected today following losses on Wall Street overnight.

IG Markets Singapore said:

News that the US is swimming in oil put the skids on commodity producers last night and led to another session of losses on Wall Street. Sentiment wasn’t helped by disappointing durable goods orders which came in weaker than expected.

Among the major averages, the Dow Jones Industrial Average was down 0.5% at 13126. The S&P was 0.5% lower at 1406 and the NASDAQ also shed 0.5% to finish at 3105.

Risk appetite was generally subdued with commodities and risk currencies losing ground. Stocks were choppy through most of the European session, until the durable-goods orders data triggered the sharp move lower.

Although the oil price retreat led to some decline in equities, once the dust settles it could increase risk sentiment if traders believe strategies are in place to stop oil rising to growth-crippling levels and to deal with supply constraints from Iran.

This argument was helped by developments in Europe where its biggest economic powers, including France and the UK, appear to be in talks with the US over a concerted effort to release emergency supplies.

The fact that the US has built up more than 7 million barrels in stockpiles will also calm fears that the world’s biggest crude oil consumer won’t have a big enough cushion to ride out the Middle Eastern tensions.

Since the Iranian crisis escalated when the EU announced a July embargo, panic had set the tone about lack of reserves and supply side issues. These fears have not been substantiated. It now appears energy-hungry nations may be in a much stronger position to cushion themselves when the Iranian oil tap is turned off in July.

WTI crude is currently trading down 1.8% at US$105.41 a barrel while Brent slipped 0.8% to sit at $125.04.

But yet another retreat in US equities reminds traders that this rally won't be a straight line heading north. There have been a few wobbles and these are likely to remain so even when the trend is upwards.

Yesterday the STI proved its resilience dropping just 0.1% after the Bernanke Bounce helped it gain 1.5% the previous day. Today looks likely to be another challenging day for the local market given the Wall Street wobble last night.

There could also be some fallout from news that China’s corporate profits won’t grow at all this year. The futures market is pointing at a softer open for the STI this morning.

RBS meanwhile reported (for 28 March 2012 trading):

Treasuries stalled a bit today against decent resistances of 1% in 5yrs (currents) and ~2.16% in 10yrs. Still, the market has not backed up much either, supported today by weaker global equities, a bit more unease on Europe, and slightly softer data (emphasis on slightly).

The auction tail on its own makes it look like a sloppy auction, but after the morning buyback showed the lowest offer/cover ration in that sector since Twist began, the market rallied and we auctioned them near the highs. It had a feel of the "sell into the buyback, cover at auction" trade going bad, and it appeared the rally took out some of those shorts beforehand.

Overall I would call the auction fine, considering. We saw foreign real money buying 3s and selling 10s (separate transactions), macro selling of 10s, and real money buying of 3s and 10s. The swaps desk saw we saw hedge funds favouring "low for longer" trades, receiving in the belly and paying in the long end.

In TIPS, we saw real money selling of 5s, 10s, and 30s. Total Treasury broker volume today was 108% of the 10-day average.