STI shows more signs of optimism

The index closed 1.3% higher in the last session, with analysts expecting further improvement in sentiment.

OCBC Investment Research said:

The continued recovery on Wall Street last Friday night and the sharply higher Nikkei 225 index (up 2.1% now) are likely to cue the local bourse to a stronger opening this morning.

The STI had already started to show more signs of optimism with a 1.3% higher close in the last session; the 2800 psychological resistance was conquered at the same time.

And with today's sentiment likely to improve further, we could see the index recovering further towards the 2830 minor peak for a test today.

Beyond that, the next resistance lies at the 2900 key support-turned-resistance. On the downside, the immediate support is now pegged at the 2800 level, with the subsequent base marked at the 2735 minor trough.

IG Markets Singapore meanwhile noted:

For the second consecutive Monday risk assets have received an early boost, as the results of the Greek Election seem to suggest a majority coalition government can be formed.

The pro-euro party New Democracy polled in first place, as the conservatives managed to beat the extreme left Syriza in the ballot. Although the difference in support was only a couple of percentage points with the winner taking an extra 50 seats New Democracy are easily the largest party in the new parliament. If, as hoped, an agreement with Pasok can be reached then the new coalition will control in the region of 161 of the 300 seats, according to the latest projections, which will be a workable majority. Questions even at this early stage seem to be arising on how strong this coalition will truly be.

Sadly despite this morning’s rally in the markets, many questions still remain as to the next move for the new government: Greece is in its sixth year of recession, has unemployment above 20 pc and confidence is so low in its banks savers are burying their cash in the mountains.

The bailout terms are also likely to remain in the spotlight as pressure remains for these to be eased by the Toika, especially after the latest Spanish bailout deal. The fact of the matter is even New Democracy is not really pro the bailout in its current state. As we headed in to the polls it was clear they were trying to win voters by emphasising this fact, much as Syriza was trying hard to point out that a vote for them did not necessarily mean automatically exiting the euro.

The G20 summit now beginning in Mexico will be breathing a collective sigh of relief as this latest twist in the Greek tragedy plays out without much drama so far. They are likely to realise that we are at an early stage and the new government is not formed, but they can perhaps focus on Spanish and Italian bond yields as their next main focus in trying to sort out the mess of debt in Europe.

We now enter a period to the end of the month full of risk events as far as the market is concerned. The main solution to the problems suffered in many nations so far has been to throw additional capital at them and apply austerity measures. As this appears not to be the answer that is keeping markets, politicians or the public happy much of what happens over the next couple of weeks will allow us to see if an alternative solution can be found.

With this in mind how the Fed react to the latest developments out of Europe will still be one of the key events, with still mixed views in the market as to we will see further QE or not. Wednesday’s FOMC testimony is awaited eagerly for this very reason. This is followed by a ‘non-policy’ meeting from the ECB on Thursday. With the belief by some that there might be some co-ordinated action from the central banks, to help ease market pressures further especially for some of the European bond yields, if the Fed twists rather than sticks we may well see this ECB meeting being more than ‘non-policy’ as they take some form of action themselves.

All of this will be followed by an EU leader’s summit on the 28th and 29th June where the deeper integration of the euro will be discussed and early blueprints for this could be released. Given many feel this is what has been lacking in this crisis if we can get some movement towards this we could well see another positive reaction in the risk assets, especially euro related.

Looking forward to the rest of the day the real question is will the relief rally in risk assets last, after last week’s short lived Monday rally investors are likely to remain wary. So far this morning we have seen Asian equities around 1.5% higher, as they catch up with Friday’s American rally and receive a further leg up on the weekend’s positive news.

Euro, aussie and sterling have all made strong gains in early trade but are now already off from early highs. Oil is around 1% higher in early trade and gold is flat.

As investors globally digest the weekend’s events and get ready for another potentially choppy week the main question will be how much of this gain remains at the end of the day. Currently we see the STI following the early Asian leads with the open coming in around 1.5% higher.