IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Overnight, US markets finished little changed after a sharp rally in the previous session to kick of the new year, with ongoing European issues continuing to keep investors wary about the prospects for markets in 2012.

Among the major averages, the Dow Jones Industrial Average added 0.2% to end at 12418, the S&P was flat at 1277 as was the NASDAQ which closed at 2648. Among the major S&P sectors, materials, technology and industrials were all modestly higher, while financials finished lower.

Issues out of Europe once again plagued market sentiment. Commercial banks held record overnight deposits, with the ECB highlighting a continuing unwillingness to lend to each other, a €5 billion auction of 10-year German Bunds was barely covered and UniCredit, Italy’s biggest bank, had to offer shares at a massive 43% discount to get a €7.5 billion capital raising away. These were certainly concerning signs for Europe and this was reflected with the FTSE, DAX and CAC all weaker between 0.5% and 1.6%.

On the other side of the Atlantic, the outlook seems to be becoming increasingly optimistic, and there is a growing belief that the US economy can continue to expand even in the face of a European recession. US data over the last few months has been increasingly positive and frequently beating expectations, and this was evident again last night with factory orders for November rising 1.8%, up from October’s 0.2% decline.

Turning to the local market, the ASX 200 is set to open lower today with the benchmark index called to unwind 11 points or 0.3% weaker at 4177. Despite US markets finishing relatively unchanged, the Aussie market looks set to the pay the price for its relative outperformance yesterday, with investors not wanting to get too far ahead of themselves in buying up stocks which were heavily oversold towards the back end of 2011. Overnight, commodity prices were marginally lower, and as a result our major miners could be expected to take pause today after two days of solid gains to begin the year. BHP’s ADR is suggesting the local stock will open 11 cents or 0.3% weaker at $36.11. Financials may also be softer after UniCredit’s deeply discounted capital raising highlighted the difficulty some banks will have raising capital in current market conditions. While UniCredit’s issues are far removed from those of our own banks, the ‘guilt by association’ trade never ceases to amaze.

Market

Price at 8:30am AEST

Change Since Australian Market Close

Percentage Change

AUD/USD

1.0372

0.0018

0.17%

ASX (cash)

4177

-11

-0.26%

US DOW (cash)

12422

20

0.16%

US S&P (cash)

1278.0

2

0.16%

UK FTSE (cash)

5695

-15

-0.26%

German DAX (cash)

6130

-5

-0.08%

Japan 225 (cash)

8505

-55

-0.64%

Rio Tinto Plc (London)

33.42

0.17

0.51%

BHP Billiton Plc (London)

19.75

-0.18

-0.90%

BHP Billiton Ltd. ADR (US) (AUD)

36.07

-0.15

-0.41%

US Light Crude Oil (Feb)

103.36

0.71

0.69%

Gold (spot)

1612.0

13

0.81%

Aluminium (London)

2065.00

-12

-0.58%

Copper (London)

7540.00

-250

-3.21%

Nickel (London)

18795.00

-105

-0.56%

Zinc (London)

1869.00

-9

-0.48%

RBA Cash Rate to be decreased by 25bp (Feb) (%)

67.00

0

0.00%

ends

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