IG Markets - Morning Prices Dec 19

US markets were mixed on Friday night as investors digested more news out of Europe. Markets initially cheered an Italy confidence vote in which new Italian Prime Minister Mario Monti was successful. This appeased markets, as it paves the way for a budget package to be passed. However, ratings agencies dampened sentiment yet again after Moody’s downgraded Belgium by two notches, and Fitch warned of a potential downgrade for six other euro-nations. Over the weekend, China posted its worst performance in home prices this year, in November.

Among the major averages, the Dow Jones Industrial Average was flat at 11866. The S&P added 0.3% to 1220 and the NASDAQ was up 0.6% to 2555. US core CPI figures rose 0.2%, beating forecasts of a 0.1% rise.

On the European front, the recent plan to boost the IMF’s firepower seems to be coming undone as some of the poorer Eastern European countries are wrangling over their contributions. Without everyone paying their fair share, Germany said it would not transfer its contribution. This is particularly concerning since this was one of the main conclusions from the summit.

Confidence and patience among investors continues to get thinner and the ratings agencies have warned that the ECB needs to give a more active and explicit commitment to prevent self-fulfilling liquidity crises ripping through the EU. There are also reports that the UK is looking to split bank’s retail and investment units. Economists have warned that the proposal will negatively impact UK growth at a time it cannot afford it.

Based on Saturday morning’s close, we are calling the Aussie market down 0.7% at 4132. With a lack of positive news from the weekend, it is difficult to see where the support will come from. However, the rare earths space might get some support from reports that the world’s largest rare earths producer, Baotou Steel, has been barred from exporting rare earths from China. This would significantly affect global rare earths supply. Locally, there is nothing to look out for on the economic front.

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