IG Markets - Morning Prices Nov 16

Global markets were mixed overnight, with Europe weaker, but the US stronger. Softness in the European session came on the back of rising borrowing costs for Spanish debt and reports that new Italian Prime Minister Mario Monti met resistance in forming a cabinet. However, there was a turnaround in the US session on improved optimism around Mario Monti’s ability to battle the debt crisis, plus some impressive US economic data.

Among the major averages, the Dow Jones Industrial Average climbed 0.1% to end at 12096. The S&P advanced 0.5% to close at 1258, and the NASDAQ surged 1.1% to close at 2686. Retail sales in the US rose 05%, smashing expectations of a 0.3% gain. There is certainly a huge improvement in the US economy with most of the recent data painting an optimistic picture. This is also backed by a solid reporting season which saw US corporate earnings impress.

Relief came after Mario Monti requested a meeting with Italian President Giorgio Napolitano later today, where he will reportedly present his new cabinet. This gave markets confidence that he had overcome some of the hurdles he had faced in forming it. However, debt yields in Italian, Spanish and French bonds remain high, which still leaves a high level of uncertainty for investors.

Disappointingly, US markets gave up some of their gains into the close, with a high level of risk from jumping European sovereign debt yields leaving investors cautious. The Aussie market is working on mixed leads following the see-saw trading we witnessed overnight. We are currently calling the Aussie market to open up 0.3% at 4297. The materials space might get a strong lead after a 5.8% gain in spot iron ore prices overnight. BHP Billiton is pointing towards a 1.5% gain on the open. In the financials space, Commonwealth Bank (CBA) has been downgraded to Sell (from Neutral) by Citi as the broker expects CBA’s valuation premium to come under pressure. This could see some traders look to reposition funds into National Australia Bank which has enjoyed some solid business momentum over the past year.

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