IG Markets - Morning thoughts and opening prices

Good morning,

In US trade, markets erased early gains after former Greek Prime Minister, Lucas Papademos, warned of a Greek eurozone exit. This news saw markets erase earlier gains which had been logged on the back of some positive US housing numbers. Fitch also rocked the boat further, announcing a downgrade of Japan's long-term foreign and local currency issuer default ratings to 'A+' from 'AA' and 'AA-', respectively. The performance in the US session was in sharp contrast to the solid gains posted in European trade ahead of the EU Summit.

Among the major averages, the Dow Jones Industrial Average was down two points at 12503. The S&P was a point higher at 1317, while the NASDAQ shed 0.3% to close at 2839.

There was a big reversal in risk assets following Papademos’ comments. Risk currencies took a big hit as the euro and Aussie dollar struggled against the greenback. With the US dollar making strong gains, commodities struggled with big drops for copper and gold. The risk aversion seen in the US session firmly puts our local cyclical plays on the back foot today. Although BHP’s ADR is pointing to a 0.1% rise to $32.38, it will be difficult to see it hold on to the early gains. Investors are likely to flock back to the safety of the defensives and high yielding stocks. After having enjoyed gains over the past couple of sessions, some caution is probably warranted ahead of the EU summit.

Ahead of the open, we are calling the Aussie market down 0.2% at 4112. It is quite surprising to see how markets reacted to Papademos’ comments, as we doubt Greece would not have already considered exiting the eurozone. The reaction just shows how rampant the headline risk is, and just how nervous investors are out there. The EU summit will be the key event risk going forward, and investors will be hoping leaders can make progress in developing pro-growth policies, fiscal consolidation and ring-fencing their banking sector. On the local economic front, we do not have any major data due out today, with the Conference Board and Melbourne Institute the only events on the calendar. These tend to have a muted impact on the market. Elsewhere in the region, Japan is in for a big day with plenty of data set to be released, plus Fitch’s downgrade. USD/JPY has edged higher in the wake of Fitch's downgrade of Japan's long-term foreign and local currency issuer default ratings.

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.

Kind regards,
Stan Shamu
Market Strategist
IG Markets

www.igmarkets.com.au

ENDS

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