STI forecast to head south; reactions on Wall Street muted

Plus analyst says the Greek exit threat still has the potential to scare sensitive markets.

OCBC Investment Research said:

The muted reactions on Wall Street overnight and the negative Nikkei start (-1% now) could cue the local bourse to a poorer opening this morning.

As such, the STI which jumped more than 1.2% yesterday could potentially halt its recovery and head back south today.

For now, the immediate support can be found at 2795-2812 gap support, with the next support at 2763 (recent trough).

On the upside, the immediate obstacle is pegged at the 2850 minor support-turned-resistance, with the subsequent resistance lying at 2900 (key support-turned-resistance).

IG Markets Singapore meanwhile noted:

What looked like a dead cat bounce for the STI could be turning into something a little more substantial after another day of gains yesterday.

After such a swift and sharp selloff of risk assets across the globe, the STI was due some kind of recovery as bargain hunters dipped their toes into the local market.

Traders saw this on Monday but may have been surprised to see the market rise again yesterday, lifting a healthy 1.2%.

A eurozone meeting of ministers today has the potential to improve the mood further with expected rhetoric on how they will save the region from collapse and persuade Greece to remain a member. But pressure grows on European leaders to provide the details for their ambitious growth and recovery plans.

The Greek exit threat still has the potential to spook sensitive markets with any negative comments from government officials. This time it was former Greek Prime Minister Lucas Papademos who yesterday warned of a Greek eurozone exit.

These comments saw markets erase earlier gains which had been logged on the back of some positive US housing numbers. Fitch also rocked the boat further, announcing a downgrade of Japan's long-term foreign and local currency issuer default ratings to 'A+' from 'AA' and 'AA-', respectively. Japanese equities will face more pressure this morning after figures show its trade gap widened by more than expected.

This highlights how Asia is being sucked into the eurozone crisis in a very real way as it relies so heavily on Europe as a major trading partner.