Good morning,
Risk assets continued to drift lower on Friday with no signs of political leaders reaching a deal. Following House
Speaker John Boehner’s decision to pull the pin on the Plan B vote, we have seen risk decline from the previous highs
posted in anticipation of a deal. With negotiations stalling, investors are happy to sit on the sidelines and lock in
recent gains. Looking at the forex markets, AUD/USD dipped below 1.04 to a low of 1.0395 while EUR/USD tested 1.316. The
euro is mildly weaker this morning with some pinning this to PM Mario Monti’s decision to not run for government at the
upcoming February elections. However, if there is an opportunity for him to run for a party that aligns itself with his
policies then he will be available. USD/JPY remained resilient after finding support at around 83.90 and pushed back
above 84 to a high of 84.4 this morning.
Ahead of the open, we are calling the Aussie market up 0.4% at 4643. This is mainly a result of US futures being down
significantly in Friday’s Asian session, only to recover after the local market closed. With US futures up around half a
per cent from Friday’s close, it’s not surprising for our market to be called up. Regardless, we expect a fairly quiet
session with no major data releases on the calendar. It is also a shortened trading day, with the ASX closing two hours
early at 2pm today. Elsewhere in the region, Japanese markets will be closed for the Emperor’s birthday while other
markets are likely to be quiet ahead of the Christmas holiday.
On a stock level, we expect to see a firmer start for BHP Billiton, with its ADR pointing to a 0.8% rise to $37. Iron
ore remained steady above $135 and this will help underpin some of the heavyweights. We expect to see most risk assets
treading water in today’s session with investors exercising some caution on the back of fiscal cliff concerns. Gold fell
yet again and this will keep the local gold plays on the back foot. Yield plays are likely to remain in favour along
with some of the defensive names.