Australian Stock Market - Morning - 11/22/2011

From Stan Shamu, Market Strategist, IG Markets

Global markets declined overnight after US lawmakers failed to reach a deficit-cutting agreement. This failure to act is magnifying the European debt issues that investors are currently trying to deal with. Moody's came out to say that rising French government borrowing costs and an uncertain economic position continues to pose a threat to the outlook for France's AAA credit rating. This confirms what most investors have feared for a while.

Among the major averages, the Dow Jones Industrial Average lost 2.1% to end at 11547. The S&P dropped 1.9% to 1193 and the NASDAQ shed 1.9% to close at 2523. The charts are looking increasingly dire after last night's move sent some of the major market averages below their key 50-day moving average.

We are certainly seeing a lack of confidence, with investors increasingly worried about unsettling economic and financial realities. Most risk assets were sold off with some big losses in the commodities space. Copper slumped nearly 3% and oil slid 1.3%, which will hurt our already struggling resource stocks on the open today. BlueScope Steel has announced a capital raising at 40 cents a share. This is effectively a 40% discount to its closing price yesterday. With the stock already trading at an all time low, this is probably the last thing investors want to see.

The financial sector will also come under pressure following a warning on France's credit rating by Moody's. A downgrade of France's AAA rating would have catastrophic effects for the financial system.

In previous sessions, bad news in Europe was somehow neutralised by some positive news in the US. At the moment we are receiving bad news from both ends and therefore it will be difficult to instil confidence among investors. Following the sharp falls in global markets overnight, we are calling the Aussie market down 1.5% at 4101. The Aussie dollar will continue to be in focus for traders after AUD/USD dropped to around 98 overnight following a spike in risk aversion.

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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