Australian Stock Market Report – Morning 10/13/2011

MORNING REPORT (7am AEDT)

Minutes from the last US Federal Reserve meeting highlighted that Fed officials discussed a fresh round of bond purchases among other tools to stimulate activity. However officials seemed to be holding back from a third round of QE. The minutes reiterated that the Fed had become a lot more concerned about the economic outlook. Commenting that ´´the risks to the growth outlook...were significant and tilted to the downside´´ and that the recovery is ´´more vulnerable to negative shocks´´.

European shares were sharply higher on Wednesday after Slovakian lawmakers struck a deal to ratify more powers for the euro zone rescue fund. Slovakia was the last country amongst the 17-EU member nations left to approve the new measures. Supporting the rally in markets was data on Euro-zone industrial production, which rose by 1.2pct in August, with the July number also revised up to 1.1pct. The FTSEurofirst index rose by 1.5pct, the UK FTSE gained 0.9pct and the German Dax rose 2.2pct.

US sharemarkets extended their rally on Wednesday as investor grew more confident that the European debt crisis may be averted. Banking shares led the advance with the KBW banking index up 3.2pct. However Alcoa which reported profits after the close on Tuesday was the biggest drag on the Dow losing 1.7pct after third quarter profits fell short of expectations. The Dow rose 0.9pct, while the S&P 500 gained 1pct and the Nasdaq lifted by 22pts or 0.8pct.

US long-term treasuries fell on Wednesday (yields higher) as investors became more hopeful about efforts to deal with the European debt crisis. US 2yr yields fell by 2pt to 0.289pct while US 10yr yields rose by 6pts to 2.212pct.

The Euro and commodity currencies rallied against the greenback in overnight trade. The Euro rose from lows near US$1.3620 to US$1.3830 and is near US$1.3790 in late US trade. The Aussie dollar also rose from around US99.10c to US102.05c and was trading near US101.60c in late US trade. And the Japanese yen traded in a tight range between 76.35 yen per US dollar and JPY77.45, ending US trade near JPY77.30.

US global crude oil prices were mixed on Wednesday despite news that Slovakia would ratify the euro zone rescue fund. However the strength in equities and a weaker US dollar supported London Brent crude. Nymex crude oil fell by US24c or 0.3pct to US$85.57 a barrel and London Brent crude rose by US63c to US$111.36 a barrel.

Base metal prices were higher on Wednesday helped by a drop in the US dollar, signs of restocking in China and an improvement in overall risk appetite. Metals rose between 0.9-4.2pct. The gold price rose in line with other metals with the Comex December gold price higher by US$21.60 an ounce to US$1,682.60.

Ahead: In Australia, labour market figures are released. In the US, no economic data is expected.

[Kick off your trading day with our newsletter]