IG Markets: Morning Prices

In the US overnight, the ‘risk-off’ trade returned with a vengeance as oil, gasoline and heating oil led another sell-off in commodities which flowed through to risk currencies such as the EUR and AUD, as well as equity markets. The US dollar index rallied strongly.

The broad-based S&P 500 was the worst performer, losing 1.1% while the Dow Jones Industrial Average and NASDAQ were down 1% and 0.9% respectively.
The local market is called to open the session 1.1% lower at 4728 following the very bearish overnight developments. Losses are likely to be widespread but will almost certainly be led by heavy selling pressure across the materials and energy sectors; they both slumped in US trade, losing 2.9% and 2.7% respectively.

Material names are likely to slump today after base metals on the LME were all down between 1.7% and 3%. In London, Rio Tinto and BHP Billiton fell 1.2% and 1.8% respectively while BHP’s ADR is calling the locally listed stock to open 1.9% lower at $44.43. Precious metals names are likely to a see active selling as both gold and silver futures pulled back aggressively. Gold fell 1.4% to be around the US$1500/oz level while silver plunged 8.8% to US$35.50/oz. Keep an eye on the likes of Newcrest Mining and Cobar Consolidated for short selling opportunities.

The energy sector will be firmly in the red after crude oil futures fell 4.9% to US$99/bbl after crude oil inventories rose much more than expected amid sliding demand. Stock levels came in at 3.8m barrels compared to forecasts of only 1.1m barrels. The heavyweight oilers were smashed with Chevron, ConocoPhillips and ExxonMobil all down between 2% and 2.8%. Traders will keeping an eye on the likes of Woodside Petroleum, Santos and Oil Search for short trades.

Elsewhere, financial and industrial names are likely to succumb to the weakness too after their US peers were both down 1.4%. In summary, it looks like a very bleak day for the local market as the theme of de-risking sweeps across markets once more.

Whilst the selling clearly started in the energy complex, it quickly spread to risk currencies, with the EURUSD collapsing, adding further fuel to fire. The EURUSD dropped from a session high of 1.4423 to a low of 1.4172 as traders aggressively de-risked positions. There were no real new headlines in the Eurozone but ECB member Stark did suggest that a Greek debt restructure is not a panacea; this is an interesting comment as it is a dramatic event for Greece to actually restructure debt and the losses felt by European banks and senior debt holders would be staggering.

However, for the event to not dramatically aid their solvency issues longer term is a huge worry and this should keep the EURUSD well offered in the short term as traders continue to ask questions about how sovereign debt issues will play out.

The AUDUSD was aggressively sold off, falling from 1.0889 to overnight lows of 1.0665 as commodity prices were slammed. However, it did manage to rally from the lows to reclaim the 1.07 level. Traders will be focusing on unemployment data due at 11:30am. Analysts are looking for 17,000 jobs to have been created and the unemployment rate to stay unchanged at 4.9%; a better-than-expected number could provide relief for the aussie bulls.

Market Price at 6:30am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0699 -0.0166 -1.53%
ASX (cash) 4740 -40 -0.85%
US DOW (cash) 12623 -125 -0.98%
US S&P (cash) 1340.0 -17 -1.27%
UK FTSE (cash) 5947 -85 -1.41%
German DAX (cash) 7460 -65 -0.86%
Japan 225 (cash) 9780 -83 -0.84%
Rio Tinto Plc (London) 41.84 -0.52 -1.23%
BHP Billiton Plc (London) 24.06 -0.43 -1.76%
BHP Billiton Ltd. ADR (US) (AUD) 44.43 -0.87 -1.93%
US Light Crude Oil (Jun) 98.99 -5.07 -4.87%
Gold (spot) 1501.5 -22.00 -1.44%
Aluminium (London) 2591.00 -66.00 -2.48%
Copper (London) 8643.00 -266.00 -2.99%
Nickel (London) 24299.00 -507.00 -2.04%
Zinc (London) 2142.00 -38.00 -1.74%
RBA Cash Rate to be raised by 25bp (Jun) (%) 35.00 -4.00 -4.00%

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