IG Markets - Morning Prices Dec 13

Risk assets were well bid in the lead up to the FOMC statement in which the Fed delivered further stimulus. As expected, the Fed announced QE4, or effectively $45 billion a month buying of US treasuries to replace its expiring ‘Operation Twist’. This will then co-exist with its current $40 billion a month of mortgage-backed security buying. However, it has finally made a change to the way it gauges how long the current policy setting will last for. The Fed will now be using an economic threshold as opposed to a calendar threshold to determine when to change its policy. As long as unemployment stays above 6.5% and inflation below 2.5%, then we can expect the current setting of 2015 to remain intact. This effectively means US economic data carries even more weight now as the market will get an early opportunity to price in potential changes to the Fed’s policy. The main currency pairs continued to trend higher with USD/JPY breaking above 83 to a high of 83.30, while EUR/USD was just shy of 1.31.

Ahead of the open, we are calling the Aussie market up 0.2% at 4592. The ASX 200 traded at a high of 4603.5 yesterday and that is the level to look out for in the near term. On the local economic front, we have MI inflation expectations and new motor vehicle sales data to look out for. AUD/USD will remain in focus after a big spike to 1.059 in US trade, its highest level since September 15. The pair has pulled back into 1.055 with near-term support around 1.05. Elsewhere in the region, the Nikkei will be one to watch after the big move in USD/JPY. Many Japanese exporters put currency hedges in place around 83.00 to protect against JPY strength; if these firms believe the pair will have a sustained move above 83.00 then you may see a number of them unwind the currency hedges, thus pushing USD/JPY even higher.

On a stock level, we expect to see a softer start for BHP Billiton, with its ADR pointing to a 0.2% fall to $33.11. The big iron ore miners had a solid session yesterday and it is clear investors are happy to pile back into the mining names as long as signs of stabilisation continue to hold. Iron ore prices edged higher to $125 and this will continue to encourage investors. Iluka Resources will be in focus yet again today after releasing a mineral sands update. The miner is struggling on the back of falling mineral sands prices. ILU has also been hit by a number of broker downgrades recently with Deutsche Bank downgrading them to sell. Linc Energy will also remain in focus after a big move higher in its share price yesterday.

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