IG - Morning thoughts and opening prices

IG - Morning thoughts and opening prices

Good morning,

Investors will return to trade today with some positive news as US leaders have finally agreed on a budget deal. In typical fashion, politicians left it right to the last day to knock up a deal that will prevent tax hikes and deep spending cuts. The deal will see taxes raised for households with annual earnings of over $450,000 while unemployment benefits have been extended. There have been some reports suggesting Republicans are still unhappy about the level of spending cuts. We are likely to hear further comments on that issue in coming sessions. The Democrats were focused on protecting the middle class who makes up the core of the US economy. News of a deal saw US equities rally heading into the New Year’s Day break. Risk sentiment was largely improved on the news as the US dollar lost ground to most of the risk currencies. GBP/USD spiked to 1.627 and AUD/USD nudged through 1.04. After an initial move higher, EUR/USD gave up ground on some comments by German Chancellor Angela Merkel. Ms Merkel reignited fears that Europe still has a long way to go with the region’s crisis far from over. Recent austerity measures are likely to continue to hamper growth for the region. USD/JPY resumed its uptrend and posted a fresh high of 86.79.

With the fiscal cliff seemingly averted, we are expecting a strong start to the year. Ahead of the open, we are calling the Aussie market up 1.2% at 4705. The last time the local market traded above 4700 was in May last year when a high of 4725 was printed. On the local economic front, today we have the AIG manufacturing index and commodity prices data. However, market participants are likely to be pinned on reacting to fiscal cliff developments. Japan will remain closed for a bank holiday today and this will limit activity in the region.

On a stock level, we expect to see a firmer start for BHP Billiton, with its ADR pointing to a 1.7% gain to $37.71. Iron ore jumped to 144.9 and this will see iron ore miners get off to a great start to the year. Although commodities were mixed on Monday, US dollar weakness and an agreement on the fiscal cliff will likely see them gain in Asia. This will be supportive of most of the resource names today. Most of the risk space is likely to gain ground today as optimism ramps up on the fiscal cliff deal. Having been a holiday yesterday, company news is still limited, but there will be plenty of macro themes to drive sentiment.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0379 -0.0021 -0.20%
ASX (cash) 4705 56 1.2%
US DOW (cash) 13070 182 1.41%
US S&P (cash) 1415.1 20.1 1.44%
UK FTSE (cash) 5968 70 1.19%
German DAX (cash) 7645 101 1.34%
Japan 225 (cash) 10390 37 0.36%
Rio Tinto Plc (London) 35.11 -0.25 -0.71%
BHP Billiton Plc (London) 21.30 -0.15 -0.70%
BHP Billiton Ltd. ADR (US) (AUD) 37.71 0.61 1.64%
US Light Crude Oil (February) 91.14 0.42 0.46%
Gold (spot) 1663.80 3.8 0.23%
Aluminium (London) 2073 10 0.48%
Copper (London) 7931 44 0.56%
Nickel (London) 17060 -140 -0.81%
Zinc (London) 2080 28 1.36%
Iron Ore 144.9 6 3.95%

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.

STAN SHAMU
Market Strategist

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