IG Markets - Morning thoughts and opening prices 1/12/11

Good morning,

Global markets rallied overnight after six central banks led by the Federal Reserve moved to ease the flow of funds to financial institutions and China cut the amount of cash that its banks must set aside as reserves. The Fed coordinated the move with the European Central Bank plus the central banks of Canada, Switzerland, Japan and the UK. The moves were cheered by markets, as it shows central banks are willing to work together to ease Europe’s sovereign debt crisis. China decided to cut the Required Reserve Ratios of banks by 50 basis points.

Among the major averages, the Dow Jones Industrial Average surged 4.24% to end at 12046. This was the Dow’s biggest gain since May 23, 2009. The S&P soared 4.3% to 1247, while the NASDAQ charged 4.2% higher to close at 2620. There was also some impressive data out of the US, with ADP non-farm employment change and pending home sales coming in way ahead of expectations.

It seems China now thinks that slowing growth is more of a risk than inflation after cutting its reserve requirements for the first time since 2008. This will inject significant liquidity into the system. The move resulted in some big moves in risk assets, with commodities and currencies rallying. Most base metals were up around 5%, while gold put on 1.4%. Oil also had a strong session, topping US$100 per barrel. However, some analysts still feel liquidity injections might not be a game changer, since the problem is in European sovereign debt markets and therefore is more structural.

Following the strong leads from US markets, we are calling the Aussie market up 3% at 4244. We expect to see strong gains across the resources and financials along with other cyclical plays that have been beaten down recently. Locally, today’s session brings building approvals and retail sales data. Traders will also be looking out for China’s manufacturing PMI number, as well as HSBC’s final manufacturing PMI number. Traders will also be eyeing the Aussie dollar after the strong move higher it made overnight. AUD/USD charged through parity and is currently trading at around 1.0277.

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.

ENDS

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