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IG Morning Thought and Opening Calls

IG Morning Thought and Opening Calls

Good Morning

US stocks advanced for the second straight day overnight as China’s stellar export data reverberated around the world. The S&P 500 added an additional 0.63% to 1470 points, finding an all new five-year high. The S&P GSCI gauge of commodities also surged on the back of the Chinese data with aluminium climbing 1.5%, while oil reversed all of its losses from the day before to find its highest level in more than three months.

The Chinese result showed the risk-on trade that had been consolidating over the previous few days has now been well and truly switched on, with risk currency pair EUR/USD jumping 1.6% to $1.3266 (the biggest move in six months) as the ECB left the region’s official interest rates unchanged. The strength in the euro was also backed up by ECB President Mario Draghi’s press comments that the region’s economy was slowly but surely healing. He reiterated the ECB’s pledge to do whatever it takes to maintain stability and stated that ‘after several years of poor contagion, positive contagion was now in play’. Look out for further gains in EUR/USD when the US reports its balance of trade tomorrow. The biggest mover following the China data was AUD/USD, rising 0.8% to 1.0598 (its highest level in four months). The results also showed that iron ore imports rose 8.4% in 2012, and with China being Australia’s largest market, the dollar had only one way to go as international investors again see the AUD as a quasi-play on China. Watch for the materials and energy sectors to play catch up on the currency’s lead in the coming weeks.

The result, however, glossed over the fact that local news this week has been nothing short of dismal. Building approvals came in under expectations, retail sales actually contracted in the month of November and Australia’s term of trade deficit rose further due to the high Aussie dollar. This all adds to the mounting pressure that the RBA needs to do more. Evening accounting for timing lags the 175 basis point reduction in interest rates since late 2011, the rate cuts have had only modest effect on stimulating the Australian market. Although iron ore and financial markets have eased some of the burden, the non-mining economy continues to struggle and further interest rate cuts are expected, with investor believing there is a 65% chance of this happening in the February meeting.

Moving to the open and we are calling the ASX 200 up a further 0.24% to 4733 points, with the China data getting a full day to filter through our market. The market is continuing to hold above the 4700 mark and should it finish the week above that level, it will close in line with Monday’s opening. To the commodities space and although copper and aluminium were again stronger last night on the back of demand from China, iron ore retreated and following negative trade in London we are calling BHP down around 31% to $37.10, as investors continue to reassess the strong rise the company has had over the previous six weeks. As it is the end of the week, investors will be cautious today. This could see the afternoon session wain with positions being closed out as investors look to the US reporting season to kicking off in earnest tonight, to return on Monday with clarity and a fresh set of eyes.

MarketPrice at 8:00am AESTChange Since Australian Market ClosePercentage Change
AUD/USD1.05950.0045 0.43%
ASX (cash)473312 0.24%
US DOW (cash)1346250 0.37%
US S&P (cash)1469.86.8 0.46%
UK FTSE (cash)611711 0.19%
German DAX (cash)7729-12 -0.16%
Japan 225 (cash)1076398 0.92%
Rio Tinto Plc (London)35.12-0.36 -1.02%
BHP Billiton Plc (London)21.31-0.24 -1.13%
BHP Billiton Ltd. ADR (US) (AUD)37.10-0.31 -0.82%
US Light Crude Oil (February)93.860.40 0.43%
Gold (spot)1673.0816.3 0.98%
Aluminium (London)211931 1.50%
Copper (London)815052 0.64%
Nickel (London)17495-139 -0.79%
Zinc (London)234716 0.66%
Iron Ore158.2-0.3 -0.19%

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 late

EVAN LUCAS
Market Strategist
www.igmarkets.com

ENDS

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