Dow Opens Near Post-Crisis Peak But Ends Lower (27Jan)

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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Stocks Close Up On Europe Debt Sales, China Growth (18Jan)

Stocks close higher after downgrades fail to squelch demand for European debt

- STI: +2.15% to 2815.9

- MSCI Asia-Pac ex-Japan: +2.6%

- Euro Stoxx 50: +1.5%

- S&P500: +0.36% to 1293.7

The Chinese economy is slowing (9.2% full year, 8.9%y-y 4q11, 7 quarters of slowing since 2q10's 12%y-y peak), and will continue to slow till 4q12 as Investment and Exports slowed down further in Dec, quite drastically in case of investment. Given that that is >50% of the economy, poses a significant hard landing risk, yet two things mitigate this (1) rebalancing efforts toward more domestic consumption got a strong boost from income growth which finished the year very well (urban households +14%, rural +18%), which will also provide downside support to housing, and (2) monetary tightening has bottomed out (M2 and New Loan growth both seem to have bottomed out) which in real economy terms means that the investment slowdown will have downside support.

Hard landing risks are still there (not our base case for 2012), but the very thing that worried markets - overtightening leading to such hard landing - has turned the corner, so it may be time to turn cautiously positive on beaten down China exposed stocks on the SGX, ad give them a serious look-in.

The direct significance however to the Singapore economy may be limited, as we have to remember that China is focusing inward as it rebalances its economy, Asia may not get that much of a China boost in the rebalancing act. Singapore's NODX to China actually turned negative y-y. Overall NODX gained 16%m-m and 9%y-y due to Pharmaceuticals, which are volatile, so it remains to be seen if NODX has bottomed. Key electronics NODX worsened -4.6%y-y, reflecting global economic sentiment.

Chances are to the upside over the short term, but we caution traders to watch the downside as: (1) as Greek haircut talks have broken down, (2) US data has been mixed, and (3) the prospect of a China RRR cut will likely still be postponed. On the other hand, market supportive reasons like the rate of mfg contractions in Europe and Asia having eased somewhat, and unlimited liquidity by the ECB resulting in backdoor QE are still there.

Over the larger trend for the STI and S&P500, we are still bearish: (a) we expect US growth to surprise on the downside due to incomes not rising fast enough to offset a fiscally tighter 2012, (b) EZ fiscal and debt-GDP targets will be missed, refinancing will be tough, exacerbated by on-going recession, (c) China will avoid hard landing but its slowdown will be a drag on Asian exports. Positive challenges to our view would be (1) the Eurozone process for fiscal integration actually addresses its suboptimal growth path, and (2) lead econ indicators globally corroborate resilience. We have some improvement in the latter already.

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European Markets Edge Up Despite Ratings Downgrade (17Jan)

Stocks edged up in Europe on Monday, showing a muted reaction to Standard & Poor’s downgrade late Friday of nine European countries, including France and Italy. Market activity was subdued, with Wall Street closed in observance of Martin Luther King’s Birthday. 

- STI: -1.3% to 2756.5

- MSCI Asia-Pac ex-Japan: -1.05%

- Euro Stoxx 50: +1.01%

- S&P500: closed for holiday

Following the downgrades, Asian stocks sold yesterday... but as for Europe... nothing! France refinanced at an even better rate. And yields ex-Germany did not rise, they fell! European stocks rallied. If markets want to go higher, they will go higher. Chances are Asia will rally today as well. Possible drag today could be China data, which is expected to slow further.

From market reactions, chances are to the upside over the short term, but its a low conviction call for us, as Greek haircut talks have broken down, US data has been below market expectations, and the prospect of China loosening is postponed. On the other hand, market supportive reasons like the rate of mfg contractions in Europe and Asia having eased somewhat, and unlimited liquidity by the ECB resulting in backdoor QE are still there. Electronics sector in Singapore could also be bottoming out if global sentiment improves, but headwinds are significant (see next para).

Over the larger trend for the STI and S&P500, we are still bearish: (a) we expect US growth to surprise on the downside due to incomes not rising fast enough to offset a fiscally tighter 2012, (b) EZ fiscal and debt-GDP targets will be missed, refinancing will be tough, exacerbated by on-going recession, (c) China will avoid hard landing but its slowdown will be a drag on Asian exports. Positive challenges to our view would be (1) the Eurozone process for fiscal integration actually addresses its suboptimal growth path, and (2) lead econ indicators globally corroborate resilience. We have some improvement in the latter already.

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