IG Markets opening calls

Overnight stocks traded in a narrow range to eventually finish marginally lower with investors taking a breather after last week’s strong gains.

The Dow Jones Industrial average closed down 0.2% at 11362, with the S&P 500 not far off breaking through recent highs of 1227, closing at 1223.12.
The resilience of the market after Friday’s disappointing jobs report has been impressive and suggests that investors are looking ahead to 2011 with a fair degree of optimism and appear prepared to give the Fed’s current round of stimulus time to have it desired effect on the economy.

In a relatively lacklustre session absent of any meaningful economic data, commodity prices once again edged higher despite a firmer USD, with confidence building that improving global economic growth will increase their demand. This in turn saw the energy and materials sectors posting modest gains which should provide some upside impetus for the local market, however a flat to sluggish performance from the US financial sector may see the local financial sector as a bit of a drag today.

Ahead of the open we’re calling the ASX 200 to unwind approximately 8 points or 0.2% higher at 4697.

It was a mixed session for risk currencies overnight with the Euro initially coming under profit taking and a renewed negative sentiment towards the region as officials showed divisions about how to contain the sovereign debt crisis. We also heard from Ben Bernanke in which he spoke on US talk show “60 minutes” stating that further QE is possible, his comments also adding to the USD strength as they provided no further dollar negative remarks.

Price action on the risk currencies was interesting and showed that after the initial wave of selling the Euro was supported around 1.3250 and the AUD around 98.50. Both pairs found good buying interest and traders pushed the pairs from their lows with the AUD reclaiming the 99c mark.

The Euro has had a strong short term rally from 1st December low of around 1.30 as traders started to believe the EU and IMF could come up with a short term bandaid, however the fact we are seeing the divergence of views from officials with regards to increasing the size of the EU bailout funds is worrying and could put pressure on the Euro going forward. For Europe to really counter the structural issues they face we need the different central banks to be singing from the same song sheets.

The AUD will certainly be the key currency to watch today and will no doubt drive the Euro, NZD and CAD in the short term. With the domestic economy going through a ‘soft patch’ in terms of recent economic data economists are not expecting a rate hike and the money markets are agreeing with a zero chance of a hike today. However, the commentary from the RBA will be key, a Hawkish tone may surprise some and will see money flow into the AUD as markets are not pricing in a rate hike here until March next year. Expect commentary from the RBA to centre on recent weakness in consumer patterns, the strong AUD and China’s engineered slowdown.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 0.9904 0.0027 0.27%
ASX (cash) 4697 8 0.17%
US DOW (cash) 11368 -5 -0.04%
US S&P (cash) 1223.5 0 0.01%
UK FTSE (cash) 5779 18 0.31%
German DAX (cash) 6959 -6 -0.09%
Japan 225 (cash) 10190 18 0.17%
Rio Tinto Plc (London) 44.57 0.41 0.92%
BHP Billiton Plc (London) 24.40 0.16 0.66%
BHP Billiton Ltd. ADR (US) (AUD) 44.84 0.31 0.69%
US Light Crude Oil (Jan) 89.14 -0.21 -0.24%
Gold (spot) 1425.2 11.9 0.84%
Aluminium (London) 2308 -36 -1.54%
Copper (London) 8782 9 0.10%
Nickel (London) 23699 -95 -0.40%
Zinc (London) 2225 -21 -0.93%
RBA Cash Rate to be raised by 25bp (Dec) (%) 0.50 -0.50 -0.50%

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.

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