IG Markets - Morning Prices Dec 15

US and European markets declined after Italy’s borrowing costs surged to a euro-era record at an auction. Worries about escalating borrowing costs for Europe resulted in an onslaught on risk assets, with significant moves in the currencies and commodities space.

It was a night of clear risk aversion, with traders simply fearing slower economic growth globally. With no key dates to get excited about, hope seems to be dissipating. Again, Germany seems to have its foot held firmly down on the ‘risk off’ peddle, with both Angela Merkel and Bundesbank head Mr Weidman suggesting that increased bond buying by the ECB is not going to happen anytime soon. The end result of this was an aggressive lower in risk assets, with EUR/USD trading to 1.2946, 79 pips from the year low, AUD/USD to 0.9884, gold to $1563/oz and WTI to $94.21.

Among the major averages, the Dow Jones Industrial Average lost 1.1% to 11823. The S&P declined 1.1% to 1212 and the NASDAQ shed 1.6% to 2539.

In the risk space, the euro broke below an 11-month low against the dollar and is currently trading below the 1.3 level. Yesterday, we highlighted that the three trades drawing 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. This is exactly what happened overnight, with gold dropping 3.6% overnight (down 8.1% for the week) and the dollar index advancing 0.3% after the previous night’s breakout. AUD/USD is now firmly below parity after having consolidated at parity yesterday.

The move in WTI and gold were nothing short of spectacular. Gold in particular has been interesting, as the fall from the all-time high of $1921 on September 6 has now both broken the July uptrend and also the 200-day moving average; the first time it has broken this key support level since January 2009. A further drop of 1.5% and the yellow metal would effectively have fallen into a ‘bear market’ - some traders are saying that the ‘bubble has burst’. Clearly if the dollar index continues to run higher and central bankers seem hesitant to ease, gold’s path of least resistance is lower in the short-term.

With many analysts forecasting AUD/USD to fall further, we might start seeing some relief to the Aussie dollar sensitive stocks. RBA Deputy Governor Ric Battellino said yesterday he expects a weaker Aussie dollar to cushion the economy should the current economic deterioration continue. However, the resource space is in for a tough day after the commodities sell-off overnight. Gold stocks are set for another tough session after having struggled all week due to gold price weakness. Newcrest Mining will be one to watch after the stock broke below key support at $32.50 this week and received a broker downgrade.

Ahead of the open, we are calling the Aussie market down 1.1% at 4146. On the economic front, traders should be on the lookout for inflation expectations and new motor vehicle sales data this morning. China’s HSBC flash manufacturing number is also one to watch.

© Scoop Media