Singapore Markets Morning Briefing - what you need to know for Thurs March 1, 2012

There was retreat on Wall Street amidst the STI's mini-recovery.

OCBC Investment Research said:

The retreat on Wall Street overnight is likely to spook the local bourse to a negative opening this morning but the strong Nikkei start (up 1.3% now) could limit the damage.

Following the rebound on Tuesday, the STI continued inching higher yesterday; after a 0.4% higher opening, the index recovered further to a 0.8% gain at the close.

With today's tone likely to turn a tad more downside biased, the index is likely to remain capped at below the 3000 psychological resistance in the near term. Beyond this immediate resistance, we see the subsequent obstacle at the 3031 recent peak.

On the downside, we see the immediate base at the 2947 recent trough formed, followed by the subsequent support at the 2900 key resistance-turned-support region.

IG Markets Singapore, on the other hand, reported:

The STI has enjoyed healthy gains as it stages a mini-recovery back towards 3,000 and will see its resolve tested today as traders react to an action-packed night of news from the global economy.

US and Europe went into overdrive last night with cheap money flooding one continent while being held back in another. This led to some clear winners (the US economy and European banks) and big losers (US equities and notably gold).

First up was Ben Bernanke, whose comments can move the markets like no other. And he had a lot to say as he gave a testimony to US Congress. Oil prices may cause a spike in inflation, the jobs market is improving faster than expected and quantitative easing is unlikely to happen anytime soon.

This last point had a huge impact on the markets, not least gold which slipped almost 5% as signs of a strengthening US economy reduced its need as a safe haven. Also some of the expected QE3 cash would have made its way into the precious metals markets.

US equities took the brunt of the disappointment with the Dow Jones Industrial Average slipping 0.4% back below 13,000. The S&P 500 dropped 0.5% while the NASDAQ fell 0.7%.

RBS meanwhile noted:

After the much anticipated LTRO came and went as expected, investors turned their attention to the US data and Chairman Bernanke's testimony. The combination of the two sent yields higher, equities lower, commodities lower (though energy rebounded into the close), and the dollar higher.

The way I saw the combined moves was as follows: with the second LTRO operation behind us, there is no third. Bernanke did not quash hopes of QE3, but he also did not trumpet QE3 as much as some apparently hoped.

Thus, markets reacted in a way that reflected investors' realization that while there is plenty of liquidity in the system (and central bank balance sheets are large), there are no liquidity adding operations on the horizon.

So perhaps it is time to dial back on liquidity fuelled positions. So the typical "printing press" hedges were in retreat, with often nasty intraday moves (for example, Gold fell ~$50 in a few minutes alone).

Equities and the Euro/the dollar traded in a similar fashion and in the bigger picture, this may not be unreasonable considering the healthy run "risk assets" have had since the first LTRO on December 2nd, all the way into today's second LTRO.

Also, while this summary reads like a day yields had large sized moves, 10yr yields rose approximately 5bps close-to-close. So despite a very interesting day in global markets, good old 10yr notes closed once again just a few bps off our familiar mid-point of the November-February range of 1.95%.