Dow nears a post-crisis peak, but rally fades and stocks finish lower
- STI: +0.1% to 2894
- MSCI Asia Pac ex-Japan: +1.18%
- Euro Stoxx 50: +1.62%
- S&P500: -0.58% 1318
Singapore may avoid a technical recession as industrial output rebounded strongly +7.8%m-m sa, ex-biomed +6.7%m-m. Electronics rebounded +7.6% m-m. On a q-q basis, ex-biomed, the rate of contraction has eased somewhat and raises the odds that 1q12 may see a rebound in GDP.
US data was a bit mixed but enough to encourage the current consensus of recovery accelerating: new home sales unexpectedly fell by 2.2% but new orders for durables beat expectations with a 3% gain. Unemployment claims rose.
The STI reacted off its 200 day MA of ~2900 which coincides with a major resistance, so watch this level. Ability to grind above it and the 200 day MA would likely continue the positive trend. In the short term, positives for equities are (1) US data markedly improved, (2) the rate of contractions in EZ and Asia have eased somewhat, (3) unlimited liquidity by the ECB resulting in backdoor QE of EZ sovereign debt, and (4) Fed anchors low rate expectations till late 2014 and possible QE3. Downside risk include (a) default by Greece, and (b) subdued EPS outlook for the S&P500 and STI this earnings season.
Over the larger trend for the STI and S&P500 we have been bearish, and despite the recent euphoria caution early days yet. While we acknowledge resilient EZ data and US data outperformance, the economic story remains on thin ice. Chiefly, threats to a continued bull run are (1) US 2012 growth likely to surprise on the downside (~1.5%) as incomes may not rise fast enough to offset a fiscally tighter year, (2) despite backdoor QE of EZ sovereign debt, yields are likely to experience upward pressure on poor debt-growth dynamics, exacerbated by a recession induced by collective austerity, and (3) China will avoid a hard landing but its slowdown will be a drag on ASEAN exports.
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