STI set for weaker open following 1.8% gain

With the tone likely to turn more downside biased, says OCBC Investment Research, the index could slip back towards its immediate support around 2735.

OCBC Investment Research said:

The more than 1% correction on Wall Street overnight and poor Nikkei start (now down 1.8%) are likely to spook the local bourse to a similar retreat this morning.

The STI had surged to a strong 1.8% gain yesterday after taking cue from the optimism on both the American and European front.

But with today's tone likely to turn more downside biased, we could see the index slipping back towards its immediate support around 2735 (minor trough formed yesterday), with the subsequent base lying at the 2700 level (major trough in Jun '12).

On the upside, the 2800 psychological level will pose as the initial hurdle, with the next resistance pegged at the 2830 minor peak.

IG Markets Singapore meanwhile noted:

The party finished earlier than expected for global markets yesterday as the Spanish bank bailout euphoria ran out of fizz.

They were initially buoyed by Spain’s last-minute rescue package and Chinese data showing exports remained firm which saw investors rushing back into the market.

But it was proved to be short-lived as the dust settled to reveal this quick fix was just that - a plaster over a broken bone. Many now realise the “loan” to Spain needs to be paid back and the debt may be the straw that breaks the camel’s back.

The €100 billion of funding sounds huge but it only represents the amount of money foreign investors have taken out of Spain in the first three months of the year as fears grew about the safety of their cash.

Instead what it does do is add to the debt burden of the Spanish economy and its ability to repay the capital. These fears are likely to make their way around the markets today.

The bigger picture of whether Spain itself may be in need of a bailout looms large on the horizon. Its premier only two weeks ago said Spanish banks didn't need external funding and now they are happy recipients of a €100 billion cheque.

When the Spanish leader declares it doesn’t need a bailout for the economy then it’s time to really worry.
Strong starts for Wall Street and Europe vanished into thin air. The Dow Jones Industrial Average shed 1.1%, the S&P 500 fell 1.3% while the NADAQ dropped 1.6%.

Anyone still interested in Facebook may like to know the share price sits at an embarrassing $27 for those foolish enough to have bought at IPO.

European shares pared back some solid early-session gains to flop once reality set in. Eurozone problems may have actually grown not shrank, as we head to Greek elections at the weekend.
Many European bourses opened up more than 2% higher yesterday only to finish in the red.

Commodity prices also had a choppy session, losing their gains from the Spanish banking euphoria and the allayed fears that the Chinese economy is on course for a hard landing.

Brent Crude has slipped from above $100 a barrel to trade at $96.34 while US Crude fell 1.7% to sit at $82.70, its lowest level for eight months.

Energy prices may come off even more after Saudi Arabia signalled its intentions to ramp up oil supply even further. The nation had been called upon in the hour of need as rising demand and Iran hostilities peaked in Q1 causing Brent Crude to spike above $128 in March.

Now the need for heightened supply from Saudi Arabia has diminished it still wants to increase supplies again even though prices have dropped below $100 a barrel.

This is causing tension among fellow Opec members but the Saudis are likely to win this skirmish as the world’s biggest producers of Crude.

Gold has slipped below the $1600 threshold while on the currency markets the euro suffered from the abrupt end to the bailout party falling below $1.25 against the dollar.

The single currency trades at $1.2475 this morning while yields on Spanish and Italian bonds rose to their heightened levels. A €100 billion bailout has done little to change the mood.

The futures market hints at a weak open for the STI and yesterday’s stellar gains of 1.8% look vulnerable. Japanese stocks have fallen sharply already this morning.