IG Markets - Morning Prices Dec 30

US markets staged a strong rally, with the S&P 500 closing back above its 200-day moving average.

Among the major averages, the Dow Jones Industrial Average and S&P 500 both gained 1.1%. The NASDAQ was the laggard, with a more modest gain of 0.8%.

Despite the time of year, it seems there are still important levels being broken which could indicate price action in 1Q12. EUR/USD broke the January low and printed 1.2858, the lowest level since September 2010, whilst EUR/JPY fell five pips shy of 100.00. While many will highlight the Italian bond auction, which to be fair had its positives and negatives, it seems the main driver of price action in the euro was actually M3 money supply and then later US data. M3 money supply (the broadest measure of money supply which includes cash and a range of other accounts), which is closely watched by the ECB in determining monetary policy, grew at 2% in November; however this fell from 2.6% growth on October. This is euro-negative, as it shows credit is shrinking and therefore should have an implication on future growth.

The bond auction had its critics with the bears suggesting the auction had to be scaled back in order to support levels. However, the bulls will point out that yields fell sharply from the previous auction of the same maturities on November 29, whilst bid to cover increased marginally. Looking at the fixed income market, Italian ten-year yields did rise to 7.12% in early trade, but it seems the ECB’s bond buying program came into action and drive yields lower throughout trade, finally settling at 7.02%, up a fraction.

US data was largely positive and helped US stocks gain progressively throughout trade, noticeably pending home sales which smashed expectations, gaining 7.3%. Initial claims were slightly below par at 381,000 but traders focused on the four-week average, which continues to decline.

Given the sharp rejection of lows in euro and subsequently gold (that broke its September low), which printed $1522, plus the strong move high in US markets, it is interesting to see we are only calling the ASX 200 to open at 4083, up 12 points with a gain of 0.3%.

This sums up the year nicely, with our market underperforming all along. BHP’s ADR is suggesting a gain of 0.5% on the open and as highlighted yesterday, $34 seems to be a good level of support. It is worth noting that while most commentators will say commodities are higher, if you look at the moves from our cash close, gold, copper and crude are lower, so most of the gains were priced into stocks yesterday.

Keep an eye on Chinese manufacturing (HSBC) data released at 1:30pm, 30 minutes before the close of the ASX 200, as a further contraction here could see risk asset fall in what will be an extremely illiquid period.

All that is left to be said is happy New Year and hopefully 2012 will see risk asset perform more positively.

Market

Price at 8:30am AEST

Change Since Australian Market Close

Percentage Change

AUD/USD

1.0141

0.0042

0.42%

ASX (cash)

4083

12

0.29%

US DOW (cash)

12283

89

0.73%

US S&P (cash)

1263.0

8

0.64%

UK FTSE (cash)

5587

76

1.38%

German DAX (cash)

5876

78

1.35%

Japan 225 (cash)

8440

76

0.91%

Rio Tinto Plc (London)

31.16

0.25

0.81%

BHP Billiton Plc (London)

18.73

0.25

1.35%

BHP Billiton Ltd. ADR (US) (AUD)

34.66

0.16

0.46%

US Light Crude Oil (Feb)

99.71

-1.52

-1.50%

Gold (spot)

1546.0

-42

-2.64%

Aluminium (London)

1992.00

-8

-0.40%

Copper (London)

7425.00

-40

-0.54%

Nickel (London)

18195.00

290

1.62%

Zinc (London)

1832.00

22

1.22%

RBA Cash Rate to be decreased by 25bp (Feb) (%)

67.00

0

0.00%

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