Australian Stock Market - Opening - 19 November 2012

Risk assets lost ground in Friday's European session, only to recover in US trade on optimism that fiscal cliff negotiations are progressing after US politicians met at the White House.

Further Greece concerns and disappointing US industrial production numbers had seen risk sold off in European and early US trade.

It is clear that fiscal cliff issues will continue to dictate sentiment going into the end of the year. As soon as US elections were concluded, focus switched to the fiscal cliff and we have since seen sentiment slump.

Of course, initial fears were around a hard-line approach by US President Barack Obama and the Republicans refusing to yield.

However, both parties now seem to be echoing the idea of a balanced method and this seems to be encouraging investors that the two parties will find some middle ground.

EUR/USD hit a low of 1.269 early in US trade before recovering to around 1.275 late in the session. AUD/USD dipped below 1.03 to a low of 1.0287 before bouncing back to 1.035. As a result, the net impact on most risk currency pairs was neutral to mildly positive after a poor European session and upbeat finish to US trade.

Ahead of the open, we are calling the Aussie market up 0.5% at 4357. The positive momentum seen into the close of US trade is the main reason behind this rise. There is nothing on the local economic front to look out for today, but the strong start seen in the risk currencies suggests sentiment has swung positively. Rising tension in the Middle East has also put another spanner in the works as it pushes up oil prices. Should the conflict escalate further, we might start seeing it dent sentiment.

On a stock level, we expect to see a firmer start for BHP Billiton, with its ADR pointing to a 1% rise to $33.25. Arrium will be one to watch today as the company holds its AGM and posts its September quarter production. After the company recently received a takeover offer (which it felt significantly undervalued the company), it will be interesting to see what outlook management has for the company. There has been plenty of negative tape around liquefied natural gas (LNG) projects recently and this is likely to continue discouraging investors this week. The concerns have been mainly about cost overruns, competition pressures and a vastly changing LNG landscape. We have already heard that BHP is looking to sell cheaper US shale gas to the Asian region. Boart Longyear could be in for a tough day after yet another earnings downgrade.

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