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IG Markets – Morning Prices 28 October 2010

IG Markets – Morning Prices

28 October 2010

On Wall Street overnight, US markets staged a strong afternoon rally to finish the session mixed. The major indices had slumped during morning trade after a report in the Wall Street Journal suggested the Federal Reserve’s approach to further quantitative easing would be more gradual than markets had been hoping for.

Continuing the recent theme, the NASDAQ was the best performer, rising 0.2%. The broad based S&P 500 slipped 0.3% while the Dow Jones Industrial Average fell 0.4%.

Locally, the ASX 200 is called to open the session flat at 4650 following mixed overnight leads. However, given yesterday’s underperformance, there could be some potential for a degree of outperformance today.

Having said that, based on US leads, it looks like the materials sector could be the focus of some selling pressure. Base metal leads from the London Metals Exchange were all lower while Rio Tinto and BHP fell 2.6% and 1.5% respectively during normal London trade. However, BHP’s ADR is called to open largely unchanged around the $41.50 level. We may seem a bit of a pullback among the gold miners after gold futures declined by 0.7% to be trading around the US$1325.4 level.

Elsewhere, we’re likely to see an element of pressure across the healthcare, consumer staples and discretionary sectors and industrial names.

The one area where we could see some outperformance is the financials. The US sector managed a modest rise of 0.1% to be among the better performers. Bank of America and JP Morgan rallied 2.1% and 0.9% respectively. Locally, ANZ’s full year result will be front centre of traders’ minds.

At first glance, ANZ’s 2010 full year result looks to be better-than-expected. FY cash profit came in at $5.13 billion, some 5.1% higher than the $4.88 billion analysts had been forecasting. The final dividend was also stronger, coming in at 74c versus expectations of 68c. Net interest margin expanded by 16 basis points to 2.46%. This compares very favourably to National Australia Bank’s result yesterday where their net interest margin rose 9 basis points to 2.25%.

Overall, it looks to be an impressive result. Many had been expecting ANZ to be the outperformer and it looks like they have delivered. CEO Mike Smith said the group had momentum in all areas. The outlook was fairly upbeat too, with Mr Smith saying they were well positioned for a good start to 2011, although the global economic backdrop continues to remain uncertain.

In summary, it looks like the market will open relatively flat, with potential weakness among material names likely offset by some strength among the financials.

Turning to currencies and again we saw the USD stage a broad based rally against risk currencies as traders speculated on the size of the Fed’s QE2 program. An article from the Wall Street Journal suggested the Fed implement a smaller program than anticipated by traders. They suggested the Fed will unveil a program of bond purchases worth a few hundred billion dollars over several months.

We have been advocating for several weeks that the market had priced in a ‘shock and awe’ approach by the Fed i.e. they will buy $500billion or more of US treasury bonds, which was reflected in the decline in the USD and 10 year Treasury bond yields dropping well below 2.5%. Over the last couple of days we have seen a slight unwinding of the ‘short US dollar trade’ as participants pare back expectations. Overnight we saw the AUD continue to pull back after the weaker-than-expected CPI data, trading to a low of 96.50, although it has since stabilised and push back above 97c again as bargain hunters emerged.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9720 -0.0018 -0.18%
ASX (cash) 4650 2 0.05%
US DOW (cash) 11117 -8 -0.07%
US S&P (cash) 1181.4 1 0.09%
UK FTSE (cash) 5665 -17 -0.30%
German DAX (cash) 6591 -15 -0.22%
Japan 225 (cash) 9390 42 0.45%
Rio Tinto Plc (London) 40.53 -1.07 -2.56%
BHP Billiton Plc (London) 21.64 -0.33 -1.50%
BHP Billiton Ltd. ADR (US) (AUD) 41.52 0.03 0.08%
US Light Crude Oil (Dec) 81.97 -0.16 -0.19%
Gold (spot) 1325.4 -9.6 -0.72%
Aluminium (London) 2316 -49 -2.07%
Copper (London) 8280 -155 -1.84%
Nickel (London) 22800 -179 -0.78%
Zinc (London) 2507 -55 -2.15%
RBA Cash Rate to be raised by 25bp (Nov) (%) 20.00 -26 -26.00%

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.

ENDS


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