Singapore Markets Morning Briefing - what you need to know for Wed Feb 29, 2012

Nikkei started strong and US markets closed higher overnight.

IG Markets Singapore said:

The STI will be hoping traders focus on the bigger global picture if it is to continue its winning ways today as positive economic news from the US and Europe improve risk sentiment.

After moving back up to 2969.7 yesterday, the psychological 3,000 level is back in sight for the bulls hoping the more upbeat mood can be sustained. But events closer to home will make it a challenging day.

Overnight US markets advanced on high hopes of a strong take-up in the ECB’s three-year LTRO which will hit the market in Europe today. However, the US economy gave out mixed messages yesterday with strong consumer confidence numbers but weak durable goods orders.

The Dow Jones Industrial Average has had the 13,000 level in sight for most of 2012 and finally broke through it last night, as investor confidence continues to rise.

Stocks were also helped along by the easing of oil prices which slipped almost 2%. WTI Crude for April delivery is now at $106.55 a barrel while Brent Crude has eased to $121.55.

Weaker U.S durable goods numbers and an expected knock-on effect on demand helped push the price of oil down, while US inventories are believed to have risen, providing a much-needed cushion for future oil shocks.

There was also some froth taken off the market as the price of oil has shot up this month over fears of falling supplies from Iran. This retreat could continue if geopolitical tensions don’t escalate anytime soon.

Thankfully, the oil seems to be still flowing, despite the negative noise and heightened fears over future supplies.

New highs for US equities, cheap European loans and stabilising oil prices are all good news for Asian markets which would welcome a spark into life this week.

The problem for Singapore is that so many of its biggest stocks continue to post disappointing earnings figures, leaving big questions for traders as to the real health of the economy. This morning, commodity stock Noble has posted a 57% fall in Q4 net profits while City Developments saw its Q4 profits slump 32% due to lower rental incomes. More worrying signs that corporates are struggling with the strong economic headwinds blowing in from the West.

OCBC Investment Research meanwhile noted:

With US stocks closing higher overnight and the Nikkei having a strong start (+0.7% now), these could inspire the local bourse to further recovery this morning.

Following the relatively sharp decline on Monday, the STI initiated a technical rebound yesterday with a 0.2% higher opening before climbing for the rest of the session to a 0.8% gain by the close.

With today's tone likely to remain more upside biased, we could see the index heading further north in the direction of the 2988-2996 gap resistance, with the subsequent obstacle lying at the 3031 recent peak.

On the downside, we see the immediate base at around the 2932-2940 gap support, followed by the subsequent support at the 2900 key resistance-turned-support region.

RBS, on the other hand, reported:

Treasuries had a choppy day, gyrating back and forth along with risk assets. At first, soft Durables sparked a Treasury rally until near 10:00, when better consumer confidence and a risk asset rally turned the market around and yields headed back to unchanged (10yr yields were 2.5bps lower earlier).

It felt like European markets wanted one last bullish push before they closed with the LTRO results tomorrow (Wednesday). In the US afternoon, markets settled into a quieter range trade, closing generally unchanged on the day.

We saw leveraged selling in 10s, central bank selling of 10s, and real money selling in 30s. swaps flows were light, and in TIPS we saw better buying (breakevens mostly) with most of the flow in the back end. Front end was two-way. Total Treasury broker volume today (Tuesday) was 104% of the 10-day average.