Global Markets Overview - 12/08/2011

US markets extended their gains overnight in a choppy session, as traders tried to position themselves ahead of the key European summit. Reports out of Europe continue to dominate trade, with plenty of headlines to digest. A report suggesting the G-20 is considering a $600 billion IMF lending program saw US markets charge higher late in the session. However, the IMF has since denied the report which resulted in US stocks retreating in the last moments of trade.

Among the major averages, the Dow Jones Industrial Average climbed 0.4% to 12196. The S&P added 0.2% to 1261, while the NASDAQ was flat at 2649. However, European markets were mostly weaker as investors grew increasingly pessimistic about the debt crisis.

There was plenty of action overnight, with stocks dropping after a German official dismissed yesterday's report that said eurozone officials would run two separate bailout funds to boost the region's rescue mechanisms. This saw European markets lose ground, as the previous day's gains occurred on the back of this report. The losses extended when S&P said it may cut the European Union's credit rating as well as ratings on BNP Paribas, Commerzbank and Deutsche Bank. Markets were then shored up by reports that the ECB may announce a range of measures to stimulate bank lending. With nothing concrete to work on, it seems investors are getting increasingly nervous.

While traders will be positioning themselves for tonight's all-important ECB rate decision (see preview on EUR/USD forex focus at 3pm), today will be interesting for AUD traders. Since November 30, AUD/USD has struggled to break the 1.03 level, testing it five times, but each time the pair has been met with a wall of sellers. Today's Australian November employment change is expected show the economy put on 10,000 jobs (with the analysts' range being +17,000 to -10,000); as always the composition of full time/part time workers will be important. The employment rate is expected to stay flat at 5.2%.

Remember in the past, this data point has been notoriously volatile, however if we do see a print north of 10,000 we could see AUD/USD push above 1.03. Whether it holds the session above there is another thing though, given the huge event risk over the next couple of days. Interestingly, despite most analysts suggesting the RBA left the door open for rate cuts in February, the swaps market is only pricing in a 37% chance of a cut at this stage, so a good print today could see further expectations being priced out, although the key decision for the RBA will not be domestic factors but how the market takes Friday's EU summit.

Borrowers will keep their eyes on the big banks after they put their interest rates under review following the RBA's decision to cut rates by 0.25%. Following the recovery we saw on Wall Street, we are calling the Aussie market to open up 0.2% at 4302.

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday's close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Stan Shamu, IG Markets Market Strategist

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