IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

Risk appetite remained resilient on Friday with all major markets pushing higher. The Fed's new 'open-ended' easing programme has sparked a sharp rally in risk assets and significant dollar under-performance. EUR/USD reached the high of 1.317 on Friday during US trade as risk appetite remained robust and USD weakness continued for the second consecutive day following the Fed's QE3 announcement. The ECOFIN meeting on Saturday focused on the implementation of the single bank supervision mechanism but negotiations hit a deadlock, with member states unable to agree on the details and the timelines. Considering that a single supervisor is a necessary condition before the ESM could start recapitalising eurozone banks, a continued deadlock could weigh on the recent EUR rally.

Ahead of the open, we are calling the Aussie market up 0.4% at 4409. Investors will be looking to see if the local market can hold and close above this 4400 level after having faltered there twice in August. AUD/USD rallied to 1.0625, but has since retreated to the mid-1.05s this morning. We are seeing a slightly negative tone in risk currencies, but it is nothing significant enough to be alarmed about. On the economic front, we have new motor vehicle sales data due out at 11.30am. Sentiment might also be affected by some comments by Treasurer Wayne Swan regarding returning the budget to a surplus. JPY weakness was the standout theme in Europe, with EUR/JPY rallying one big-figure, dragging USD/JPY up with it. The pair remains supported both by the threat of intervention and policy response, plus the Fed's decision to avoid buying US Treasury securities. Japan markets are closed today, but no doubt the USD/JPY movements will a significant bearing on the Nikkei tomorrow.

On a stock level, we expect a firmer start for BHP Billiton with its ADR suggesting it will be 2.8% higher at the open to $34.25. Iron ore prices are back above the $100 level which is a positive for the iron ore miners. Aquarius Platinum could be under pressure yet again after temporarily suspending some operations at its Kroondal mine in South Africa amid rising tensions in the region. Investors will also be monitoring the wires for any developments on the Fortescue funding issues. As we mentioned on Friday, the materials sector has now broken out of a downtrend. The floor that Ben Bernanke put in markets through announcing that substantial QE programme will probably lend cyclicals significant support with the miners likely to lead the way.

Market Price at 8:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0551 -0.0028 -0.26%
ASX (cash) 4409 19 0.44%
US DOW (cash) 13582 35 0.26%
US S&P (cash) 1469.3 5.5 0.38%
UK FTSE (cash) 5901 0 0.00%
German DAX (cash) 7387 -30 -0.41%
Japan 225 (cash) 9231 72 0.79%
Rio Tinto Plc (London) 32.82 2.04 6.62%
BHP Billiton Plc (London) 20.48 1.14 5.91%
BHP Billiton Ltd. ADR (US) (AUD) 34.25 0.94 2.83%
US Light Crude Oil (October) 99.18 -0.30 -0.30%
Gold (spot) 1775.4 1.0 0.05%
Aluminium (London) 2200 67 3.12%
Copper (London) 8380 38 0.46%
Nickel (London) 17775 512 2.96%
Zinc (London) 2116 -111 -4.97%

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.

Please contact IG Markets if you require market commentary or the latest dealing price.

www.igmarkets.com.au

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