Monday, the STI breached the 3200 barrier before the break, but after resuming trading, it slided to end 4.75 points down at 3188.05.
Widespread anxiety was ignited by concerns about the financial sector after S&P cut its debt rating on Merrill Lynch, Lehman Brothers, and Morgan Stanley from “stable” to “negative.” Long-term outlook on JP Morgan Chase and Bank of America were pessimistic too. News of management shakeups at Wachovia and Washington Mutual were also announced.
Blue chips declined across the board, despite better than anticipated economic indicators. The Institute for Supply Management (ISM) index rose to 49.6 in May versus forecasts for a decline to 48.5. Seen from a negative angle, and it is still the fourth straight month of manufacturing contraction (figure below 50). Construction spending improved by falling 0.4% in April as compared to a drop of 0.6% in March.
Later in the week, we await results on factory orders, employment, productivity and the services sector of the economy.
Being that the STI takes its cue from Wall Street, there are strong headwinds at the 3200 barrier unless Dow Jones is able to break out at 12800. It is not impossible but will take a confluence of positive factors. At the moment, just wait and see.