IG Markets: Morning Prices

In the US overnight, stocks finished the session mixed to modestly lower as commodities continued their retreat after the CME upped the margin required for silver futures for the second time in as many days and oil retreated on forecasts crude inventories climbed to the highest level in six months.

The Dow Jones Industrial Average was the best relative performer, finishing flat for the session. Elsewhere, the S&P 500 fell 0.3% while the tech-heavy NASDAQ lost 0.8%.

In Australia, the ASX 200 is called to open the session 0.7% lower at 4754 after the weak US session and the return of trade on London markets. Once again, it was the energy and materials sectors that did the most damage on US markets, declining 2.5% and 0.9% respectively.

Energy weakness is likely to lead the local market lower after crude oil prices saw significant selling pressure on forecasts tonight’s crude oil stock pile numbers will show levels are at a six month high. Since our 4.30pm close yesterday, the black gold is down 1.9% to US$110.83/bbl. This saw big oil names continue their slide with the likes of Chevron, ConocoPhillips and ExxonMobil all losing more than 1.6%.

Material stocks will probably see pressure once again despite modest gains for LME base metals after a two-day break. In London equities trade, Rio Tinto and BHP Billiton fell 1.6% and 1.5% respectively while BHP’s ADR is calling the Australian listed name to open 0.6% lower at $45.25. Precious metal names should see further weakness after silver plunged more than 7% after another margin hike from the CME and gold futures retreated 0.7% to US$1538.1/oz. Keep your eyes on the likes of Cobar Consolidated, Australia’s biggest pure play silver miner and Newcrest Mining.

Elsewhere, financials had a relatively strong session in US trade, with the sector adding 0.4%. The likes of Bank of America, JP Morgan, Wells Fargo and Citigroup were all bid higher by more than 0.7%. Locally, bank earnings continue with Westpac just reporting their first half results. At first glance, the result looks to be in line with market expectations after the group posted a cash profit of $3.168b. After yesterday’s selling across the sector, will this result be enough to stem the tide?

In summary, it looks like the local market will open the session lower for the second straight day as commodity based sectors lead the market lower.

In currency action overnight, the USD’s price action remained choppy as traders looked to reduce risk in portfolios; US treasuries were testament to this with long yields seeing good buying. The euro managed to rally off session lows of 1.4755 to trade just shy of the 1.49 level after a European think tank suggested the ECB will raise rates to 2% by the end of the year.

Interest rate differentials are supportive for the euro with the difference between 2 year German bunds and 2 year treasuries at 127 basis points, making the euro more attractive to hold for investors. Jean Claude Trichet speaks tomorrow night at the ECB conference and the market will be looking to see if he gives any signs as to where rates may be by year end. If the market gets a sense that the recent strength in the euro is starting to hurt their export led economy then we could see EURUSD test key support at 1.4633. Tonight’s EU retail sales could also be a short term driver.

The AUDUSD made an attempt to rally in US trade but ultimately finished near the lows of the session at 1.0834. With risk being reduced and precious metals sold off heavily the aussie came under selling pressure. Yesterday’s RBA statement has been viewed as slightly more hawkish after it suggested headline inflation was likely to be ‘closer to target over the year ahead’; however, it was not perhaps as hawkish as the market was positioned for, hence the slight pullback against the EUR and NZD.

Today, traders will see the release of AIG service sector data and HIA new home sales, with neither expected to materially impact the AUDUSD. Given this, short term movements will no doubt hinge on risk appetite in the market. We’ve seen a healthy correction from 1.10 in the AUDUSD so it will be interesting to see if traders use this pullback as a buying opportunity or whether there is further profit taking to come.

Market Price at 6:30am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0845 -0.0071 -0.65%
ASX (cash) 4754 -31 -0.65%
US DOW (cash) 12787 -11 -0.09%
US S&P (cash) 1353.5 -5 -0.38%
UK FTSE (cash) 6041 -42 -0.69%
German DAX (cash) 7468 -41 -0.54%
Japan 225 (cash) 9907 -46 -0.46%
Rio Tinto Plc (London) 42.93 -0.68 -1.55%
BHP Billiton Plc (London) 24.87 -0.38 -1.49%
BHP Billiton Ltd. ADR (US) (AUD) 45.25 -0.25 -0.55%
US Light Crude Oil (Jun) 110.83 -2.11 -1.86%
Gold (spot) 1538.1 -10.27 -0.66%
Aluminium (London) 2787.00 36.00 1.31%
Copper (London) 9342.00 50.00 0.54%
Nickel (London) 27103.00 363.00 1.36%
Zinc (London) 2251.00 -1.00 -0.04%
RBA Cash Rate to be raised by 25bp (Jun) (%) 26.00 - -

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