IG Markets - Morning thoughts and opening prices

IG Markets - Morning thoughts and opening prices

Overnight, US stocks had one of their best sessions for the last two months as they extended a two-day rally on the back of lawmakers passing the new budgetary measures and averting the fiscal cliff.

The S&P 500 advanced 1.7% to finish at 1453 points and has now moved up 3.6% in the last two sessions, reaching its highest level since February 2011. All sectors of the US market experienced gains, led mainly by technology, telecommunications and financial stocks. The CBOE Volatility Index also known as the VIX or ’fear gauge‘ fell sharply to its lowest level in five weeks after surging on fear that the fiscal cliff would not be adverted, illustrating that investors are pleased with the deal. Other economic news from the US was the Institute for Supply Management’s Purchasing Managers Index (PMI) for December registered a slight gain to 50.7 which was better than expected, up from 49.5 in November (the weakest level in three years). 50 is the dividing line between expansion and contraction and was therefore met with renewed optimism.

With renewed clarity, the US budgetary deal has locked in some short-term certainty, and mining stocks, which are very closely linked to the economy’s performance, posted very sharp gains. They were also bolstered by the additional news that China continued to expand in December. In London, this pushed global miners such as Glencore and Xstrata up 7.2% and 6.7% respectively and helped the FTSE 100 gain 2.2% to its highest level since October 2011, closing at 6027 points. All other major European markets performed just as strongly, with the DAX up 2.19% to 7778 points and the CAC moved higher by 2.55% to 3,733 points.

Turning to currency markets, the dollar recovered during the US session against the euro and held its gains versus the Japanese yen after moving lower during Asian and European trade. One analyst was quoted as saying that FX markets are not as excited about the fiscal cliff as equities, and thus have not reacted as strongly. The euro rose to 1.3299 during the session, however it could not break the 1.33 level and fell back to 1.3198. Bond yields also reacted to the news with yields jumping sharply after the bill was passed. US 10-year bonds are now touching 1.98% after ending 2012 at the lowest yields in decades. This news led some overseas investors to convert to US dollars, Japan particularly (as one of the largest holders of US treasuries), with the dollar rising to ¥87.12 - its highest level in six months.

Moving to our market and with continuing strength in the US and European overnight, we are calling the ASX up around 0.6% to 4,735. This would see the Aussie market heading back to levels not seen since the first quarter of 2011. With both raw materials and spot commodities surging overnight, BHP ADR is matching up at $38.08 firmer by 0.64% and should lead all stocks higher today. With volumes and confidence increasing across the globe, the momentum gained at the end of 2012 looks set to continue over the coming days.

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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