STI closes 0.1% lower; commodity markets react badly to Bernanke's comments

The index was unable to sustain itself above 2770 during an ‘uninspired’ session.

OCBC Investment Research said:

The muted showing on Wall Street overnight and the weaker Nikkei start (now down 1.2%) could continue to keep local investors sidelined today, especially with the weekend upon us.

As a recap, the STI had an uninspired session yesterday, closing 0.1% lower, as investors were reluctant to add further to the previous session’s 1.8% recovery.

Inability to sustain itself above 2770 (61.8% retracement of 2605-3035 rally) could herald more near- to medium-term weakness; this could see the index easing back towards 2700 and eventually 2605.

Meanwhile, 2800 remains the next significant hurdle.

IG Markets meanwhile noted:

It was a very eventful night for markets yesterday as they were pulled one way then the other with positive and negative news from the world’s biggest economies.

Traders were cheered by China’s surprise cut in is main interest rates while left downbeat from cautious comments from Fed chairman Ben Bernanke and a downplaying of the need for fresh stimulus.

And in Europe market sentiment edged up a notch with a successful Spanish bond auction only to fall flat after Spain was downgraded three notches to BBB by ratings agency Fitch.

This left Wall Street a mixed bag last night. The Dow Jones Industrial Average rose 0.4%, NASDAQ fell by the same amount while the S&P 500 ended flat.

Europe fared better with the FTSE 100 up 1.2% and the DAX lifting 0.8%.

In Asia today markets will be poised to react to China’s decision to cut its interest rates for the first time since the Global Financial Crisis.

With May economic data out tomorrow the Chinese authorities may be pre-empting some weak figures with such a rate cut.

Up until now the eurozone has been public enemy number one in the global economic recovery, but China could have an even bigger role knocking the final nails in the coffin of a global recovery.

Economists have generally been divided on the hard/soft landing debate. However, a few will be shifting to the hard landing side after last night’s cut. Markets are still holding out for a big stimulus package to keep the world’s second biggest economy ticking over with huge infrastructure spending sprees. The current leadership will want to handover a relatively healthy economy to new leaders later this year, but will be mindful of transferring one riddled with more asset bubbles.

Asian markets will also be digesting Ben Bernanke’s speech to congress last night. Bernanke prefers to sit on the fence and give the US economy more time to show its true colours before another round of stimulus.

But while he is not revealing his cards for QE3 no-one can deny that economic conditions are becoming ripe for more asset purchases. While the eurozone stares into the abyss of negative growth, Bernanke seems to be happy with moderate growth.

Commodity markets reacted badly to Bernanke’s comments as gold and oil went south.

Gold had rallied on the China rate cut only to drop off 2% after Bernanke failed to mention the Q word. The precious metal has slipped below $1600 to trade at $1592.

Oil suffered a double whammy from Bernanke. No announcement on monetary easing coupled with downbeat comments about the growth risks from the eurozone crisis dampened energy markets.