IG Markets Morning Thoughts

IG Markets Morning Thoughts

US markets got off to a strong start after German investor confidence grew and Spain’s debt auctions impressed. Markets were also anticipating some indication of more quantitative easing from the Fed ahead of its statement. Sentiment switched quickly after the Fed refrained from signalling further quantitative easing or further coordinated action with the ECB. There were also reports that German Chancellor Angela Merkel rejected boosting Europe’s permanent bailout fund.

Among the major averages, the Dow Jones Industrial Average lost 0.6% to 11955. The S&P declined 0.9% to 1226 and the NASDAQ shed 1.3% to 2579. In Europe, the FTSE bucked the trend, finishing the session up 1.2% as oil and gas shares surged.

Although markets reacted negatively to a lack of action by the Fed, there are a lot of positives to take away from this. The Fed said the economy in the US is maintaining growth in an environment where the global economy is struggling. Surely this is a better situation to be in than needing a QE3 just to keep things afloat.

Some of the trades that are gaining significant interest at the moment include buying the dollar index, shorts on gold and selling risk currencies (EUR/USD and AUD/USD) into any strength. The Dollar index broke out last night after rising 0.9% to top 80 for the first time since January. Some traders will be watching to see if it holds the breakout before committing to fresh entries with some analysts calling for a move to 81.31-44 (the highs from November 2010 and January 2011). AUD/USD is currently hanging at around parity after topping out at around 1.016 overnight. There is significant downside pressure on the pair, which has already traded at a fresh December low this morning. As a result, traders will be eyeing shorts on the pair today.

We are likely to continue seeing some cautious trading as the threat of S&P coming out to issue some downgrades at some stage this week looms. Some would argue that this is already priced in, but it will still likely rock the boat should it happen.

With oil posting significant gains overnight, we could see the energy sector outperform today. On the economic front, traders will be looking out for Westpac Consumer Sentiment and some comments from RBA Deputy Governor Ric Battellino. We are calling the Aussie market down 0.4% at 4175.

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.

ENDS

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