IG Markets - Morning Prices August 11, 2010

IG Markets - Morning Prices

Overnight, US markets closed modestly weaker after the Fed announced it would reinvest maturing mortgage holdings into longer term treasuries in order to reduce borrowing costs and stimulate the economy On the news stocks pared sharp earlier losses which had been instigated by much weaker-than-expected import numbers out of China.

The Dow Jones Industrial Average ended down 0.5% (having been lower by 1.4% earlier in the session), the NASDAQ ended lower by 1.2% with JP Morgan making some damaging comments about the tech sector, while the S&P closed 0.6% weaker.

Really though it was all about Chinese data and the Fed’s view on the economy. Earlier in the day Asian market had been rattled by China’s massive monthly trade surplus which was perpetuated by a much lower import growth rate (22%) than the market had been looking for. This fuelled concerns about the supposedly robust levels of domestic demand within the Chinese economy and not surprisingly resources stocks were beaten down on the news. These concerns saw the US market open decidedly on the back foot.

The other dominant issue of the day was the FOMC meeting. While many in the market had predicted the Fed would take measures to re-enact quantitative easing to stimulate the sluggish US economy it didn’t go quite that far, although it did acknowledge that the pace of the economic recovery would be somewhat slower than it had originally anticipated. Rather than expand its balance sheet by buying more mortgage backed securities, the Fed said it would reinvest proceeds from maturing mortgages into longer-term treasures (predominantly 10-year treasuries) in order reduce borrowing pressures and hopefully stimulate the economy.

The Fed’s more bearish assessment of the economy, and its targeted measures to ease borrowing pressures at the longer end of the curve, saw treasuries surge, 10-year yields hit their lowest levels in 18 months and the dollar trim its earlier gains.

Locally, we’re calling the market to unwind, relatively flat, down about 4 points or less than 0.1% at 4537. In recent days our market has tended to underperform or outperform US leads and today may prove no different. While the Fed’s measures were effectively a non-event, it is the Chinese import data that will be of most influence on our market and we probably had our big reaction to that data yesterday.

While the China’s import data will undoubtedly provide some continuing headwinds for our resource names in the short term, company earnings reports from Commonwealth Bank and Computershare will also influence the sentiment of local investors. After a somewhat disappointing trading update from NAB yesterday, the market will be looking to Commonwealth Bank for some leadership and some much need optimism for our dominant financial sector.

Market / Price at 7:00am AEST / ...
...Change Since Australian Market Close / Percentage Change

AUD/USD / 0.9131 0.0011 0.13%
ASX (cash) / 4537 -4 -0.08%
US DOW (cash) / 10649 -24 -0.22%
US S&P (cash) 1121.6 -3 -0.23%
UK FTSE (cash) / 5393 -9 -0.16%
German DAX (cash) / 6313 -25 -0.39%
Japan 225 (cash) / 9490 -58 -0.61%
Rio Tinto Plc (London) / 33.88 -0.44 -1.27%
BHP Billiton Plc (London) / 19.92 -0.31 -1.51%
BHP Billiton Ltd. ADR (US) (AUD) / 40.49 -0.24 -0.59%
US Light Crude Oil (Sep) / 80.28 -0.73 -0.91%
Gold (spot) / 1203.6 2.8 0.24%
Aluminium (London) / 2173 3 0.14%
Copper (London) / 7304 -57 -0.77%
Nickel (London) / 22250 -330 -1.46%
Zinc (London) / 2094 -38 -1.78%
RBA Cash Rate to be raised by 25bp (Sep) (%) 2.00 0.00 0.00%

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Please contact IG Markets if you require market commentary or the latest dealing price.

Cameron Peacock
Market Analyst
IG Markets

ENDS

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