Australian Stock Market Report - Morning 11/29/2011

MORNING REPORT (7am - Wall Street still open)

US new home sales rose by 1.3pct in October - marking the fastest pace of growth in five months. The supply of new homes on the market eased modestly from 6.4 to 6.3 months' supply. The Dallas Fed Manufacturing Index rose from 2.3 to 3.2 in November.

The OECD lowered 2012 world economic growth from 4.6pct to 3.4pct in its latest forecasts. Highlighting that the biggest risk to the global economy is the euro zone debt crisis and a breakup of the euro currency can no longer be ruled out. Chinese growth forecasts have been cut from 9.2pct to 8.5pct for 2012, while the UK economy is expected to go back into recession.

European shares recorded their biggest one-day gain in a month on Monday. Hopes of further measures to help resolves the debt crisis and a push for a more centralised fiscal authority drove sentiment. The banking sector led the gains with the STOXX Europe 600 Banking Index up 5.7pct. The FTSEurofirst index rose by 3.6pct with the UK FTSE up by 2.9pct while the German Dax higher by 4.6pct.

US shares rallied on Monday on growing speculation that a solution to the Euro zone issues may be on hand. Material stocks were amongst the big gainers driven by higher commodity prices. The S&P materials index surged 3.7pct. Retail stocks also advanced after the strong Thanksgiving weekend sales. The S&P retail index gained 3.4pct. With an hour of trade to go, the Dow Jones was higher by 27pts or 2.4pct with the S&P 500 up 2.7pct and the Nasdaq was up by 78pts or 3.2pct.

US long-dated treasuries fell on Monday (yields higher) as investors shifted from safe-haven US government bonds to riskier asset classes like equities. US 2yr yields fell by 2pts to 0.27pct and US 10yr yields rose by 2pts to 1.99pct.

Major currencies rallied against the greenback on Monday. The Euro rose from lows near US$1.3260 in early European trade to highs around US$1.3405 and headed into the US close near US$1.3305. The Aussie dollar rose from lows around US97.40c to US99.80c, and was near US98.80c in late US trade. And the Japanese yen traded between JPY77.40 yen per US dollar to JPY78.25, ending US trade near JPY78.00.

US crude oil prices rallied on Monday driven by hopes for a solution to the euro zone debt crisis and a strong start to US holiday sales. Nymex crude oil rose by US$1.44 or 1.5pct to US$98.21 a barrel and London Brent crude rose by US$2.60 to US$109.00 a barrel.

Base metal prices rallied on the London Metal Exchange on Monday driven by a strong improvement in sentiment. Prices rallied between 1.1-2.7pct with the exception being Tin. And the gold price rose in line with other commodities. The Comex gold price rose by US$26.10 an ounce or 1.5pct to US$1,711.80.

Ahead: In Australia, new home sales data is released. In the US, consumer confidence and Case-Schiller home prices are released.

Craig James, Commsec Chief Economist

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