IG Markets - Morning thoughts and opening prices 10/11/11

Global markets slid overnight as Italian debt yields escalated to euro-era record levels. The 10-year Italian bond yields topped 7% for the first time in the euro-era, completely erasing the optimism we had seen in the previous session. The spike in yields happened after LCH Clearnet SA raised the amount it charges clients for trading Italy’s government bonds and index-linked securities. Reports that German Chancellor Angela Merkel was working on a plan to make it possible for European nations to exit the euro area also affected sentiment.

Among the major averages, the Dow Jones Industrial Average dropped 3.2% to end at 11781, suffering its worst one-day fall since 22 September. The S&P tanked 3.7% to close at 1229 and the NASDAQ declined 3.9% to close at 2622. Financial names were among the biggest losers, with the likes of Goldman Sachs falling over 8%.

Just as everyone was beginning to see light at the end of the tunnel, the European crisis seems to have got worse overnight. Risk assets were the biggest culprits of the uncertainty that has gripped global markets following the spike in Italian bond yields. Commodities and equities were heavily sold off, with notable declines in the financial and resource space. The US dollar had a strong night as investors flocked to the safety of the greenback. This move hurt the commodities, with even gold losing ground.

Our financial and resource-heavy index is in for a tough day. We are calling the Aussie market down 3.1% at 4212. Mining heavyweights BHP Billiton and Rio Tinto are pointing towards drops of over 3% at the open. The banks are also pointing towards falls of around 3%. This is likely to be made worse by the fact that ANZ and NAB are going ex-div today and will probably open significantly lower. In local economic news, traders will be looking out for unemployment figures due out at 11.30am. The unemployment rate is expected to rise to 5.3% (from 5.2%). China’s trade balance figures will also be in focus as they are set to be released later today.

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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