Solid start after strong gains on international markets over

09.47 AEST, Thursday 19 July 2012

Solid start after strong gains on international markets overnight

By Miguel Audencial (Sales Trader, CMC Markets)

The Australian market is set for a solid start today with strong gains posted by American and European markets after US Housing Starts data posted encouraging figures. The energy sector is likely to perform well today after Crude Oil prices posted solid gains overnight.

The US Equities Markets ended higher for the second day in a row after Housing Starts rose higher than expected. The market was also supported by the release of the Fed’s Beige Book stating that ‘overall economic activity continued to expand at a moderate pace in June and early July’. Further comments from the Fed also indicate they don’t expect the US economy to be back in recession.

European markets closed notably higher yesterday reacting to the previous day’s comments from the US Fed that they are ready for additional stimulus when needed. The encouraging US Housing Starts data also gave an additional boost to the market.

Although the European equities market posted solid gains last night, caution about the high debt levels in the region is still present. This can be seen as a lot of investors elected to place their funds in the safety of German debt instruments. They are even willing to take negative yields on the German 2 year notes. In contrast, the 10 year Spanish debt instrument was 13 basis points higher last night, just a few points below the 7% danger barrier.

Crude oil extended its rally to six straight days after a higher than expected inventory figure was reported. The increasing conflicts with Iran also provided increased risk premiums because supply disruption may be present in the future. Obviously a lot of attention will be placed on any developments in this conflict by oil traders. Just a few months ago, the same conflict in the region is one of the main reasons why crude oil traded in the $110 mark.
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