Australian Stock Market Outlook - 07/23/2012

Risk assets had a tough session on Friday on deepening Spanish debt concerns. Safe-haven assets performed well with gains for the US dollar, Japanese yen and gold. Spain's highly indebted state, Valencia, is reportedly set to seek the central government's help to repay its debt, which led to heavy selling of the euro across the board. This heightened fears that Spain is going to need a full-blown bailout. The eurozone finance ministers' approval of the Spanish bank bailout terms on Friday was as expected, but did not help to calm the markets as the EUR/USD fell to 1.215. The Aussie dollar also retreated, with AUD/USD falling from a high of around 1.0445 to a low of 1.03625. This morning, the pair has opened a touch weaker, but seems to have significant support in the 1.03 to 1.032 region.

Ahead of the open, we are calling the Aussie market down 0.9% at 4162. Sentiment has remained quite negative as risk currencies started the week on a subdued note this morning. Should there be further downside from this opening call, we could see support kick in at around 4150, which has been a fairly significant level over the past year. On the local economic front, we have PPI data due out at 11.30am. However, this is not a major market event. Tomorrow is a more significant day on the economic front, with plenty of PMI numbers due out. In the Asian region, we'll have China HSBC flash manufacturing PMI, while in Europe we have French and German PMI released tomorrow. RBA Governor Stevens' speech tomorrow will drive expectations for future RBA policy, particularly in a context of the Q2 CPI data and mixed expectations for further easing.

On a stock level, we expect a weaker start for BHP Billiton, with its ADR pointing to a 1.4% drop to $30.93. Elsewhere in the resources space, Resolute Mining has posted its June quarterly output report. The stock will be in focus along with other gold peers on the back of a fairly resilient gold price.

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