Singapore Markets Morning Briefing - what you need to know for Wed Jan 18, 2012

Recovery on Wall Street not likely to help much.

OCBC Investment Research said:

Despite the recovery on Wall Street overnight, it is unlikely to have much positive impact on the local bourse this morning as the STI had already raced ahead with a strong 2.2% surge yesterday on significant pick-up in trading volume.

With the key resistance at 2793 now convincingly retaken, we could potentially see the index trending higher towards the 2910 key support-turned-resistance in the medium term as sentiments improve further.

However, we do not rule out a near-term technical correction to retest the newly established resistance-turned-support at 2793 in the days ahead following the index's recent sharp rally.

Beyond the 2910 key resistance, we see the subsequent obstacle at the 3000 key psychological resistance. On the downside, the subsequent base is now pegged at 2735 (minor resistance-turned-support and 100-DMA).

Meanwhile GFT noted:

The euro may have ended the North American trading session higher against the U.S. dollar but the rally is losing momentum. After a completely illogical reaction to the downgrades by Standard & Poor’s, EUR/USD traders may finally be waking up to the troubles that lie ahead for the Eurozone.

We have previously pointed out that even though the downgrades may have been expected by some traders, the impact on borrowing costs will place an undue burden on troubled nations, pushing them to the brink of default.

In fact, one of the biggest stories today was the growing possibility of a default by Greece who will be holding discussions with their creditors on January 20th. If the discussions do not go well and additional aid is not disbursed, the country could default on its March loan payments as predicted by rating agency Fitch.

Hungary is in its own mess with the European Union threatening to sue the government for trying to sway the central bank. With 80 percent of its exports destined for the EU, the country has been deeply affected by the region’s debt crisis.

The country is currently in talks with the IMF for a bailout package but according to the European Bank for Reconstruction and Development, Hungary will not receive the package that they want. Instead, any aid will come with a number of harsh conditions.

The downgrades have continued with Standard & Poor’s slashing the ratings of European banks and insurers. It is our opinion that the crisis will only intensify, forcing additional actions by European policymakers.