MORNING REPORT
(8.00am AEDT)

The NAHB housing market index (which measures homebuilder sentiment) rose from a downwardly revised 19 in November to 21 in December - marking the highest reading since May 2010. Even with December´s gain, home builder sentiment is still historically low and well below the 50 mark - indicating more builders view market conditions as poor than favourable.

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European shares were mixed on Monday. Despite no further downgrade of sovereign credit ratings, investors remained cautious. EU finance ministers joined a conference call to discuss swift implementation of the €200 billion expansion of IMF resources as well as initial discussions on the “fiscal compact” agreed at the EU summit a couple of weeks ago. But there were no concrete announcements made during the European session. The FTSEurofirst index gained 0.1pct with the UK FTSE down by 0.4pct while the German Dax was lower by 0.5pct.

US shares fell on Monday in light volumes. Banking stocks led the declines after comments by ECB President Mario Draghi weighed on sentiment. Draghi said the economic outlook faced substantial downside risks, adding that 2012 would be a difficult year for the banks. The S&P Financial sector fell 2.3pct. At the close of trade, the Dow Jones was lower by 99pts or 0.8pct with the S&P 500 down 1.2pct and the Nasdaq was lower by 32pts or 1.3pct.

US long-dated treasuries rallied on Monday (yields lower) as the weakness in equity markets and North Korean political situation revived the bid for safe-haven US debt. US 2yr yields rose 1pt to 0.238pct and US 10yr yields fell by 4pts to 1.806pct.

Major currencies gave back gains against the greenback on Monday after the ECB president stressed the risks to the Euro zone arising from the debt crisis. The Euro fell from highs near US$1.3035 to lows around US$1.29805and headed into the US close near US$1.2995. The Aussie dollar fell from early highs around US99.65c to US98.80c, and was near US98.90c in late US trade. And the Japanese yen traded between JPY77.85 yen per US dollar and JPY78.05, ending US trade near JPY78.00.

US crude oil prices recorded modest gains on Monday. Protest in Kazakhstan raised fears of supply disruption. Nymex crude oil rose by US35c or 0.4pct to US$93.88 a barrel and London Brent crude rose by US31c to US$103.66 a barrel.

Base metal prices were weaker on the London Metal Exchange on Monday as traders focused on the concerns for global growth. Metals fell between 0.6pct-2.4pct. And the gold price recorded modest losses. The Comex gold price fell by US$0.20 an ounce to US$1,597.70.

Ahead: In Australia, the Reserve Bank Board minutes are released. In the US, housing starts and building permits are released.