Asia seeing red

Asia slipped into red yesterday, which continued in the European and US session.

Charts
Source: Bloomberg

The disappearance of risk appetite after last week’s positive performance can be traced to bad news around oil once again.

Front month oil futures plummeted over 4% on Tuesday as a mix of comments from OPEC producers and Russia signalled that even output cuts are not on the table at the March meeting. In addition, a weak reading on the US consumer confidence rattled investor sentiment. Gold gained favour, putting on +1.5%, but remained within $1200-1250, indicating that the demand is likely temporary.

The rebound from last week is in all likelihood a relief rally, of course, only time would verify this assertion. Moreover, last week’s bounce is due to a few factors, including a recovery in oil prices and better Chinese sentiments. Most of this factors seemed to have dissipated while the underlying reasons remained.

Weakness in the world economy, questions about the effectiveness of central bank policies and the lack of long-term capital still work against a sustained rally in risk markets. This could only mean that volatility may return in the foreseeable future.

 

Not so Noble intentions

Moody’s downgraded the commodity trader’s corporate family, senior unsecured bond ratings to Ba3 from Ba1, and may further lower the ratings after another review. The downgrade came swiftly after Noble unexpectedly wrote down an additional $1.2 billion in charges on long-term contracts on Tuesday.

The collapse of coal prices was fingered as the chief reason for the write-downs. S&P said that the profits warnings are ‘credit negative’, and a confluence of adverse factors that the company is facing may result in multiple-notch downgrade.

Interestingly, Noble’s share price was little changed. If anything, it appeared to continue recovery in the S$0.30-S$0.40 range, moving past the 50-day moving average. It could be positioning plays ahead of the earnings results on Thursday, 25 February, after market hours. The consensus estimate for adjusted EPS is at -0.067, and a net income loss of USD436 million.

 

STI hitting resistance

The Singapore stock market, the STI index, has been on a strong recovery move lately, powering through 2670 yesterday after adding 117 points or +4.6% last week. Financials and telcos led the charge. However the upswing we have seen is heading into the 50-day moving average resistance at 2696. Given the return of risk-off sentiments, the STI could come under strong pressure. On the agenda, Singapore revised the Q4 GDP reading upwards to 6.2% QoQ SAAR, from 5.7% previously, although it was adjusted lower to 1.8% on YoY terms. The Singaporean economy slowed to 2% in 2015, from 2.9% in 2014.

 

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