IG Markets - Morning Prices Dec 12

US and European markets rallied on Friday night after European leaders came to an agreement on how to curb the debt crisis. The new agreement will provide tighter budget rules for nations and will add EUR200 billion to the euro war chest. Euro central banks will also contribute EUR150 billion towards the IMF’s general resources. At first glance, the agreement is certainly not the bazooka everyone was hoping for, but leaders feel that this opens the way for the ECB to intensify its role in the crisis.

Among the major averages, the Dow Jones Industrial Average climbed 1.6% to 12184. The S&P rose 1.7% to 1255 and the NASDAQ jumped 1.9% to 2647. Sentiment was also lifted by some positive economic data including US trade balance figures and consumer sentiment numbers.

Although most of the European leaders are hailing this as a solution, there is still some uncertainty surrounding the agreement. Focus will now be on the implementation of the agreement and the finer details, which are due to be completed by March next year. The growth outlook under the new austerity measures will be challenging and some of the structural problems are still an issue. Also of concern is the fact that British Prime Minister David Cameron refused to back the latest effort. However, for now, investors seem to be happy enough that Europe has averted a disaster.

Reuters also reported that China’s central bank plans to create an investment vehicle to manage US$300 billion worth of funds to improve returns on its FX reserves. The vehicle will manage two separate funds, one targeting investments in the US and the other focused on Europe. This could give further upside to markets.

The rally extended to other risk assets, with key commodities posting solid gains. Copper and oil rose around 1.5% each. BHP Billiton’s ADR is indicating a 2.4% gain. We expect a solid day for cyclical stocks as investors react to the developments in Europe and look to reposition themselves ahead of 2012.

Risk currencies have started the week fairly flat this morning, but based on Saturday morning’s close for the futures, we are calling the Aussie market up 1.6% at 4272. On the economic front, traders will be eyeing home loans and trade balance numbers due out at 11.30am.

© Scoop Media