IG Markets - Morning Thoughts
IG Markets - Morning Thoughts
Overnight, US markets soared after Ben Bernanke delivered on market expectations by announcing a fresh round of quantitative easing to bolster the sluggish US economy and stimulate a lacklustre jobs market. The Fed announced that it would commence buying mortgage backed securities to a level of $40 billion a month (indefinitely, or at least until it was convinced the employment situation was on a sustainable trajectory), that it would extend ‘operation twist’ through until the end of the year and would hold the federal funds rate near zero through until at least 2015. Mr Bernanke stated that ’a highly accommodative stance on monetary policy will remain appropriate for a considerable time after the economic recovery strengthens’, a comment seen as reinforcing the Fed’s desire to ensure the economy gains and maintains traction. Also during his press conference, Mr Bernanke lowered the Fed’s 2012 growth outlook to 2% from 2.4% previously and acknowledged that the unemployment rate was likely to remain above 8% by the end of the year. Pleasingly, the Fed upgraded its growth outlook for 2013 and 2014, while expecting inflationary pressures to remain below its target level of 2%.
To sum things up, the market got pretty much exactly what it wanted and the result was predictable, nor was there any ‘buy the rumour, sell the fact’. Equities soared, the dollar dropped, and risk currencies and commodities rallied. By the end of the US session there were numerous commentators asking the obvious question – “ How long will it last?” - the market needs more and more (stimulus) achieve the same highs.
Thanks to the overnight developments, the local market is set up for a strong finish to the week with the ASX 200 called to unwind 41 points or 1% higher at 4380, on what is likely to be broad-based gains. While Fortescue’s debt covenant issues are likely to remain a feature story, the miners should see decent gains on the open, evidenced by BHP’s ADR suggesting the local heavyweight will open more than 2% firmer. Gold names are also likely to benefit from gold’s $35 bounce to $$1765.
at 6:30am AEST Change Since Australian Market
Close Percentage Change
AUD/USD 1.0542 0.0077 0.73%
ASX (cash) 4380 41 0.94%
US DOW (cash) 13525 180 1.35%
US S&P (cash) 1461.4 20.4 1.41%
UK FTSE (cash) 5868 86 1.49%
German DAX (cash) 7370 18 0.25%
Japan 225 (cash) 9065 69 0.77%
Rio Tinto Plc (London) 30.79 0.02 0.05%
BHP Billiton Plc (London) 19.33 0.22 1.15%
BHP Billiton Ltd. ADR (US) (AUD) 33.44 0.66 2.02%
US Light Crude Oil (October) 98.03 1.04 1.07%
Gold (spot) 1765.8 34.5 1.99%
Aluminium (London) 2121 41 1.97%
Copper (London) 8183 88 1.09%
Nickel (London) 16968 295 1.77%
Zinc (London) 2181 53 2.47%
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