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IG Markets - Afternoon thoughts Dec 24

Good afternoon,

FTSE 5942 +2
DAX 7636 Closed
CAC 3667 +5
IBEX 8283 -8
DOW 13163 -28
NAS 2657 -8
S&P 1426 -4

Oil 88.51
Gold 1657

It has been a quiet session in the Asian region ahead of the Christmas break and with Japanese markets closed for the Emperor’s Birthday. Despite some negative leads, Asian markets have managed to edge higher with the ASX 200 up 0.3%, the Hang Seng rising 0.2% and the Shanghai Composite advancing 0.4%. This is a bit of an improvement on the losses seen in the risk space on Friday when fiscal cliff negotiations stalled. However, risk currency pairs haven’t done much and have been mostly sidelined with sentiment little changed from Saturday morning’s close. AUD/USD has stayed a touch below 1.04, while EUR/USD is sidelined at 1.318. USD/JPY gapped higher at the open to 84.4 and remains elevated despite Japanese markets being closed. The pair remains fairly well bid ahead of the BoJ minutes on Wednesday. Following last week’s decision to increase the asset purchase program, the minutes will be closely watched as investors hope for more aggressive action in the future. Japan also announces its new cabinet on Wednesday, so it is set to be a big day for the yen.

Markets are likely to maintain tight ranges ahead of the Christmas break and of course until we get further leads on the fiscal cliff negotiations at the end of the week. Ahead of the European open, we are calling the major bourses relatively flat. Most markets will only trade for half the session while Germany will be closed all day. As can be expected, with not much trading happening there is no major economic data on the calendar to look out for. Prime Minister Mario Monti’s decision to not run for government at the upcoming February elections will be one to monitor over coming weeks. However, if there is an opportunity for him to run for a party that aligns itself with his policies then he will be available. We are calling US markets modestly weaker with an early close scheduled and no economic data.

The ASX 200 has retreated from its early highs but still managed to eke out a 0.3% gain on limited volume. Most sectors have managed to gain ground with advances for materials and financial names lifting the overall market. BHP Billiton has risen 0.4%, Rio Tinto is up 0.1% but Fortescue Metals is down 0.9%. Gold miners have come to life today with Medusa and OceanaGold rising over 3% each despite the recent decline in gold prices. Iron ore remains steady above $135 and this is helping to underpin some of the heavyweights. Commonwealth Bank is leading the big banks with a 0.6% gain while Westpac and ANZ are only marginally firmer. Billabong has edged higher after allowing its bidders to conduct due diligence. The defensive space has had a stellar session with Telstra climbing 0.7%, CSL Limited up 0.4% and Wesfarmers adding 0.5%.

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