STI down 0.6%, set for weak opening

A slide into the red for the rest of the week looks on the cards for the STI, says IG Markets Singapore.

Here’s more from IG Markets Singapore:

The crisis in the eurozone slipped from very bad to worse last night as Spanish and Italian yields edged up and the euro fell to a new low as confidence fades further.

A disjointed approach to how eurozone policymakers are handling the crisis has seen confidence slowly ebb away. Investors are still willing to put their hard-earned cash in the dwindling returns of German bunds and US treasuries even though they have hit record lows.

Safety is the new game in town as traders decide the risks are too high keeping it in risk assets like eurozone equities and the single currency.

Last night the euro fell below the $1.24 level last night as another worrying sign of negative sentiment. Italian bonds joined the hall of shame for nations with bond yields now above 6% which dented the single currency.

Pressure on EU ministers to do something to restore confidence is building rapidly. This may involve the ECB stepping in to buy Italian and Spanish bonds but it definitely doesn’t involve recapitalising Spanish banks.

After a positive couple of days the rug has abruptly been pulled on this week's mini rally by the doom and gloom circulating the eurozone and the lack of good news out of the world’s two biggest economies.

Traders took weak US housing starts badly as the benchmark S&P 500 dropped 1.4%. Elsewhere on Wall Street, the Dow Jones Industrial Average fell 1.3% while the NASDAQ lost 1.2% as traders fled risk assets.

The carnage continued in Europe with the FTSE100 down 1.7%, the DAX losing 1.8% and the CAC 40 plummeting 2.2%.

Markets had sand kicked in their face yesterday from China which poured cold water on rumours it could be launching a massive spending spree to revitalise the economy. Asian markets took this badly as the one glimmer of hope for a week of gains sank without trace.

OCBC Investment Research meanwhile noted:

Renewed weakness on Wall Street overnight and the very poor Nikkei start (down 2% now) could send the local bourse into a similar tailspin today.

Though the STI is already down 0.6% yesterday, a break below 2770 (61.8% retracement of 2606-3035 rally) could see the index returning to 2600 levels.

Below 2770, the next support is at 2755 but the firmer one is lower at 2705.

On the upside, 2800 remains the key hurdle.