STI closed 0.9% lower

The fall followed four consecutive sessions of gains, and OCBC says tone is likely to remain pessimistic.

OCBC Investment Research said:

Weak economic data from the US, coupled with declines in European and Chinese manufacturing, triggered investor fears of a global slowdown and led US equities to suffer their second largest fall this year. Goldman Sachs also issued a short call on the S&P 500 with a 1,285 target. Decliners beat advancers four to one on the NYSE with 866m shares exchanging hands.

WTI Crude for July delivery fell US$3.25, or 4%, to end at US$78.20/barrel for its worst one-day percentage loss since mid-Dec after the poor economic data slashed prospects for oil demand. Brent for Aug delivery fell as well, losing US$3.46, or 3.7%, to end at US$89.23/barrel.

Gold for Aug delivery lost US$50.30, or 3.1%, to end at U$1,565.50/ounce on the back of US dollar strength after the broad market declines. Silver for Jul delivery tracked gold prices lower, shedding US$1.55, or 5.5%, to end at US$26.84/ounce.

The sharp plunge on Wall Street overnight and the poor Nikkei start (down 0.8% now) likely to spook the local bourse to further losses this morning.

As a recap, the STI had already started turning back south yesterday with a 0.9% lower close; this following four prior consecutive sessions of gains.

And with today's tone likely to remain pessimistic, we could see the index closing the 2814-2821 immediate gap support; and may even slip further towards the next base at 2800.

On the upside, the immediate resistance is now pegged at the 2862 minor peak, with the subsequent vital obstacle marked at the 2900 key support-turned-resistance.

IG Markets Singapore meanwhile noted:

Equities and other risk assets tumbled as a raft of weak manufacturing data and continued disappointment over the lack of new initiatives from the Fed took hold of global markets.

The largest casualty over the last couple of sessions has been oil; Front month WTI is currently well below $80 a barrel after having settled yesterday at its lowest level since the beginning of October 2011.

Gold also fell and is now trading at the mid-$1560 level, basically erasing all gains for 2012 for the precious metal.

The commodity market space as a whole has officially entered bear market territory, as the S&P GSCI Spot Index of 24 Raw Materials dropped to a day’s low of 558. Since reaching 715 toward the end of February, this general gauge has shed 22%. With growing opinion that not much in the short term can be done to pick up global growth or consumption demand, there is little reason to see this slump ending any time soon.

The main beneficiary from all this would seem to be the US consumer and US inflation rates. While commodity prices fall, they will see prices in their stores and petrol pumps reduce. The same might not be true for Asian consumers, as the USD strength means that in local currency terms prices are not dropping as quickly or not at all, with India suffering especially at the hands of a weak currency.

The forex markets paint a similar picture to what we have seen in the other asset classes. Risk currencies sold heavily, with Aussie down around 1%, the euro losing 0.9% and sterling off by 0.7% against the greenback. The ten continued to slide against the USD also, as the hopes for a more dovish stance from the BOJ weakens the currency, however most businesses in Japan seem to be in favour of this weakness in the currency.

With major eurozone leaders meeting at a summit today, the pressure has been heaped on Merkel as the IMF call for complete monetary union for Europe. With this meeting between Germany, France, Italy and Spain, the German Chancellor might be feeling a little isolated in her views at this meeting. Given the pressure at home, it is unlikely she will change her stance at this meeting.

With the sentiment shifting quite sharply back towards the negative, we are looking at an open in Singapore with the STI over 1% lower this morning.