IG Markets - Morning thoughts

In US trade, markets retreated from early highs after home sales data came in weaker than expected. The move saw US markets shed some of the gains from the previous session. However, European stocks rallied as investors reacted to news that the FOMC’s monetary policy is likely to remain accommodative for even longer than previously expected. The Stoxx 600 index for Europe is now back in bull market territory, having recovered more than 20% from its September lows and the euro has responded accordingly, ending the session above 1.31.

Among the major averages, the Dow Jones Industrial Average lost 0.2% to close at 12735. The S&P shed 0.6% to finish at 1318 and the NASDAQ declined 0.5% to close at 2805. A few key results were released in US trade, with Caterpillar, the world’s largest construction and mining equipment maker, posting earnings that exceeded analysts’ estimates.

Given the fact that the Aussie market was closed yesterday, investors are now facing mixed leads. We saw significant gains for risk assets yesterday, with most of the Asian region pushing higher yesterday. This rally extended into the European session with gains across commodities and other risk assets. US markets actually got off to a strong start, but declined following the new home sales numbers. Despite this fact, we feel there are several positives for the Aussie market to work off today.

Ahead of the open, we are calling the Aussie market to open up 0.3% at 4282. Given the buoyant risk environment, particularly in commodities, there are plenty of upside drivers for the local market. With a high probability of further quantitative easing, commodity prices are likely to continue rising. Rio Tinto and BHP Billiton were among the best performers in Europe, advancing more than 3%. BHP’s ADR is currently pointing towards a 1% gain at the open. The positive results from Caterpillar are likely to be supportive of some local mining services companies, like Bradken and Seven Group Holdings. Gold is also looking increasingly attractive given the prospect of further easing, and this will bring precious metal stocks in focus.

Kind regards,

Stan Shamu

Market Strategist
IG Markets

www.igmarkets.com.au

ENDS

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