Calmer bond markets support sentiment

The rally in European and US markets was attributed to more stability in the bond sectors. S&P 500 climbed to a new record high at 2121.1, led by technology shares. 

The Standard & Poor's logo is displayed at the company's headquarters in New York, U.S., on Tuesday, Feb. 5, 2013.
Source: Bloomberg

A weaker dollar also prompted investors to buy into multi-national companies on hopes that future overseas earnings will be lifted on a lower exchange rate.

But it is worth bearing in mind that trade has been rather choppy this week as investors react irrationally to the bond ‘rout’.

There is still no discernible short-term trend and as long as the market continues to pick apart every US data point for clues on the Fed’s next move on rates, heightened volatility would remain.

Speaking of data, jobless claims surprised to the downside, dropping to 264,000 with the four-week average at the lowest, since April 2000. Strangely, this normally should have raised expectations of the Fed’s rate hike but USD remains under pressure. This could be due to weaker-than-expected PPI readings, which makes it hard to place policy bets on either direction.

In Europe, ECB President Mario Draghi’s commentary boosted confidence in the equity markets, it underscores the belief that the central bank will not prematurely pull out its stimulus. He said, ‘there is little indication that generalised financial imbalances are emerging’.

Straits Times Index

Waning trading volume continues to see the STI running out of momentum. Thursday’s volume was at a poor 1.5 billion shares worth SGD 971 million, reinforcing the belief that the local market is entering a low volatility, low volumMeanwhile, Olam, Genting Singapore, Thai Beverages missed their earnings estimate, while Starhub will be announcing their profit performance today.

As a whole, only 28% of STI companies beat earnings expectations with growth in earnings dropping 2.8%, accompanied by a deeper contraction in sales growth (-3.4%).

Cautious mood ahead of the Asia open

Although a much calmer sentiment in the bond markets will certainly afford some relief in Asian markets, investors are unlikely to get too excited about the overnight gains. We may see a mixed open for markets in Asia and calling CSI300 4690 -10, Hang Seng 27441 +155, Nifty 8212 -12, and MSCI Singapore 389.25 +0.6.

Singapore’s retail sales will be out this afternoon, where consensus is looking for a 3.3% year-on-year growth from a combined 5.4% rise in January-February. The release of a couple of Q1 GDP reading in Malaysia and Hong Kong may also be of interest.  

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