IG Markets - Morning thoughts and opening prices

IG Markets - Morning thoughts and opening prices

Risk declined in US trade on Friday as market participants continue to focus on the looming fiscal cliff. The fact that US lawmakers have cut their holidays short to try and deal with it before January 1 has not done much to appease investors who remain sceptical that leaders remain far from a deal. With markets relatively risk-off on Friday, the USD gained ground against most of the majors with EUR/USD experiencing a sharp drop from 1.326 to 1.317. Although the pair managed to recover to around 1.322, it remains relatively subdued. AUD/USD had managed to recover to around 1.04, but dropped back into 1.037. USD/JPY finally gave up some ground as the yen strengthened for the first time in a while. The pair dropped back from its Asian session highs of 86.64 to retest support at 86. Over the weekend, President Obama stepped up rhetoric and was on the wires pushing the Republicans to vote on his proposal. The President feels he has made a good offer which the Republicans shouldn’t have any problems passing. The US House of Representatives is meeting this morning and comments are likely to be a key driver of sentiment in Asia. We are hearing increasing rhetoric suggesting we may not get a definitive/comprehensive solution until January. Some analysts feel we might get a patch-up deal for now, particularly on the tax breaks and entitlements for the unemployed, while leaders work on a more comprehensive solution next year.

Ahead of the open, we are calling the Aussie market down 1.1% at 4619. Being a Monday, it’s always difficult to get an accurate read of the open as futures have been closed since Saturday and there have already been some developments on the political front since then. After having rallied on fiscal cliff optimism on Friday, it is not too surprising to see such a swift turnaround on a lack of progress. Although it will be another shortened session today, there is plenty of headline risk that could cause significant volatility heading into the end of the year. However, volume will remain light with many market participants still on holidays. On the local economic front, we have private sector credit data due out at 11.30am, with a 0.3% increase expected. We wouldn’t be surprised to see this figure come in ahead of consensus following the recent rate cuts and a seasonal spike in spending. Elsewhere in the region, we have the HSBC final manufacturing PMI reading which is expected to come in at 50.9. Japanese markets will be closed today as the country observes a four day bank holiday.

On a stock level, we expect to see softer start for BHP Billiton, with its ADR pointing to a 0.9% drop to $37.07. Iron ore remained steady, but most commodities struggled on the back of a stronger US dollar. As a result, the resource names are likely to come under pressure early in the session. We can expect to see defensive names do well today as risk appetite wanes on fiscal cliff concerns. However, this could all swiftly change should we get a market friendly outcome from the negotiations. As expected heading into the New Year’s Day holiday, news flow is limited on the company front. All up it has been a good year for the local market with a 15% gain (as of Friday’s close) mainly led by the financials. Considering all the hurdles investors have had to overcome, it has not been a bad outcome at all. We expect to see another strong year next year and this time it is likely to be a materials led recovery. We have already seen strong signs of stabilisation in the miners and this makes a good base to build on heading into 2013.

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.

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