17/05/12 - 08:30
Justin Harper
Head of Research, Singapore
Wall Street has turned decidedly bearish on equities as traders decide the eurozone crisis now presents too big a danger.
Fund managers and institutional investors are reducing their exposure to risk assets as the eurozone looks likely to implode, inspired by the Greek political fallout.
All this doesn’t bode well for Asian markets who are already suffering from this sharp turn in risk sentiment. Yesterday regional bourses took another tumble with the STI extending its losses to more than 5% since the first Greek election results.
The US
On Wall Street, the Dow Jones Industrial Average was down 0.3% at 12,599. The S&P was 0.4% lower at 1325, while the NASDAQ retreated 0.7% to close at 2874.
US markets had traded in positive territory earlier in the session thanks to some upbeat economic data as housing starts and industrial production beat expectations.
There was even talk of monetary policy easing (QE3) as more members said they would back another round of cheap liquidity if conditions dictated. Even this talk of QE3 did little to lift US stocks, highlighting just how concerned investors are right now with the eurozone crisis of confidence.
Europe
Things in Europe took a turn for the worst last night over reports that the ECB will freeze lending to some Greek banks. This spooked investors who are seeing a slow and steady trickle of deposits out of Greek banks.
Markets are likely to remain unsettled until we get some hard and fast answers on whether Greece will leave the eurozone and who else might follow. With a second election one month away markets will remain choppy with rumour and speculation.
Some traders may be sitting this one out with seasickness while others will be going on fishing trips looking to catch some bargains among oversold stocks.
Commodities
Any asset aligned with global growth has taken a battering this month. US crude has fallen to levels not seen since last November. WTI crude has recovered slightly this morning trading at $93.59 a barrel, having fallen to $92.81, down 1.2% in the overnight US session.
Some traders may feel oil prices may have fallen enough and the full eurozone damage premium has been priced in. Others may be bargain hunting as prices hit a six-month low.
Greece has come up the wrong time for US oil bulls who are seeing stockpiles rise while demand falls off a cliff. Brent is proving more resilient, hovering just above the $110 a barrel mark.
Gold bulls may have some slight optimism after it recovered a little last night from a December low of $1527 an ounce. It is currently trading at $1547 although well down on its high this year, when it traded close to $1700 an ounce and acted like a safe-haven asset.
Singapore
Looking at the local economy, Singapore final GDP for Q1 remains unchanged from earlier estimates of 1.6%. But with a disappointing Q1 earnings season for some of its biggest counters there are plenty of storm clouds on the horizon for the economy.
As Singapore wakes up to some of these storm clouds this morning, a few will be lingering over the local stock market today. The futures markets point to a soft open for the STI as the rain continues to pour down on traders.
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