IG Markets: Morning Report

In the US overnight, US stocks continued their pullback following last week rally that drove the major indices to two-month highs. Gold posted yet another record high of US$1424.40 per ounce as the US dollar index rose strongly across the board, especially against the euro on concerns over the sovereign debt situation in Europe.

The broad-based S&P 500 index was the biggest decliner, losing 0.8% while the tech heavy NASDAQ lost 0.7% and the Dow Jones Industrial Average 0.5%.

Domestically, the Australian bourse is called to open 0.3% softer at 4725 following the weaker overnight leads. It was very much a US dollar story last night as it continued to push higher. Stocks recently have been inversely correlated to the US dollar.

Local selling is likely to be heaviest across the financial and material sectors after they were the biggest decliners during US trade, falling 1.9% and 1.8% respectively. Financials fell away sharply late in the session with the likes of Bank of America, JP Morgan, Wells Fargo and Citigroup all down more than 1.5%.

Leads for material names were positive overnight until the US dollar gained strongly late in the session. On the LME, base metals were all higher while in normal London trade, Rio Tinto and BHP Billiton added 2.8% and 1.6% respectively. However, once the US dollar began moving higher, materials fell sharply, with BHP’s ADR now calling the locally listed stock 0.3% weaker at $44.52.

Elsewhere, the industrial, consumer discretionary and staples sectors are all expected to drag on the local market after they all finished down more than 0.5%.

In summary, it looks like the Australian market is set for another session of weakness following the overnight pullback. Westpac Consumer Sentiment data at 10.30am and Home Loans numbers at 11.30am will provide some focus during the morning session but overall, it looks like a fairly soft days trade coming up.

Equities were largely driven by what happened in foreign exchange markets overnight. The market seems to be getting more concerned about the high levels of sovereign debt amongst European PIIGS nations, which in turn weighed heavily on the euro and the saw the US dollar rally firmly across the board. The US dollar index rose 1% to 77.77 while the euro traded to a low of 1.3750. The AUDUSD came under pressure too as traders looked to pare their exposure to risk, falling to 0.9998 before finding support through the 1.000 level.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0026 -0.0090 -0.89%
ASX (cash) 4725 -16 -0.34%
US DOW (cash) 11341 -30 -0.26%
US S&P (cash) 1213.1 -6 -0.47%
UK FTSE (cash) 5856 8 0.14%
German DAX (cash) 6758 17 0.25%
Japan 225 (cash) 9730 52 0.54%
Rio Tinto Plc (London) 44.54 1.23 2.84%
BHP Billiton Plc (London) 24.69 0.39 1.58%
BHP Billiton Ltd. ADR (US) (AUD) 44.52 -0.12 -0.27%
US Light Crude Oil (Dec) 85.86 -0.98 -1.13%
Gold (spot) 1389.5 -21.9 -1.55%
Aluminium (London) 2470 27 1.11%
Copper (London) 8800 28 0.32%
Nickel (London) 24510 171 0.70%
Zinc (London) 2572 41 1.62%
RBA Cash Rate to be raised by 25bp (Dec) (%) 11.00 3 3.00%

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