Global Markets Overview-July 7, 2011

Here is IG Markets Global Markets Overview: (From Market Analyst Ben Potter)

In the US overnight, the major indices finished the session modestly higher after traders shrugged off a weaker start amid largely negative news flow. China raised interest rates by 25 basis points, European banks slumped on contagion fears following the Portuguese rating downgrade and the US Services ISM number came in lower than expected.

The Dow Jones Industrial Average was the best performer, up 0.5% while the NASDAQ and S&P 500 added 0.3% and 0.1% respectively.

Locally, the ASX 200 is called to open the session 0.2% lower at 4597 given US indices have fallen from where they were trading at 4.30pm yesterday. In terms of sectors, the leads are very mixed this morning so it hard to pin point exactly where the falls may come from.

It looks likely that we'll see some selling pressure among financial names after European and US banks were hit hard following the Portuguese credit rating downgrade. The US sector was the worst performer, closing 0.5% lower as the likes of Bank of America, JP Morgan, Citigroup and Wells Fargo were all down more than 1.1%. Although local banks don't have much direct exposure, we're expecting negative sentiment to weigh.

Consumer discretionary and energy names may also see some pressure after weaker leads from the US sectors; they fell 0.4% and 0.2% respectively. Energy stocks were sold down after crude oil futures retreated 0.9% to US$96.87/bbl amid worries over the sustainability of the global economic recovery. Tonight's crude oil inventory numbers will be closely watched.

On the upside, we could see some modest gains more industrial and material names after the US sectors added 0.5% and 0.4% respectively. Caterpillar and Boeing were the standouts in the industrial space, gaining 1.5% and 0.8% respectively.

Despite the gains in the US, leads for the materials space are mixed as base metals on the LME were all down between 0.1% and 1%. However, in London trade Rio Tinto and BHP managed to add 0.4% and 0.5% respectively. Locally, BHP's ADR is calling the stock to open the session unchanged at $44.44.

In summary, it looks like we're going to see modest declines at the open of Australian trade ahead of what's going to be a big day for economic releases. During the Asian session, traders will be focusing on the latest employment data due at 11.30am; as it stands the market is expecting 15,200 jobs to have been created, with the unemployment rate unchanged at 4.9%. Given the recent weakness in these figures, our gut feeling is that there could be some downside risk to these numbers.

Heading into tonight's session, there is a huge amount of data, kicking off with UK Manufacturing Production at 6.30pm AEST. At 8pm, German Industrial Production is due followed by the Bank of England and European Central Bank's interest rate decisions at 9pm and 9.45pm respectively. If that wasn't enough, the US ADP Non-Farm employment report and jobless claims are then due at 10.15pm and 10.30pm.

Whilst the BoE is almost certain to remain on hold, markets are pricing in a certain 25 basis point hike from the ECB, with traders focusing on the accompanying press conference for further tightening hints.

In currency markets, the EUR/USD came under heavy selling pressure following Moody's downgrade of Portugal's credit rating. It slumped from Asian highs of 1.4465 to European lows of 1.4285; its currently just north of the 1.43 figure. The AUD/USD held up remarkably well given the selling in the euro. It fell to lows of 1.0653 before rebounding and stabilising around the 1.0690 level.

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