Global Markets Update – 12/21/12

Risk assets reversed losses once again driven by headlines regarding the fiscal cliff negotiations. House Speaker John Boehner's pledge to work with President Obama was enough to help improve sentiment. There were also plenty of positive economic releases in the US including a better-than-expected GDP print and existing home sales data. The Philly Fed manufacturing index also topped estimates. However, positive US data can be a double-edged sword these days as it results in markets repricing QE expectations. Following the recent change from a calendar-based threshold to an economic data-related threshold, any positive economic data will result in markets feeling QE won't be needed for as long as initially thought. This tends to be positive on the US dollar and in turn weighs on some risk assets like commodities. Risk currency pairs like AUD/USD and EUR/USD managed to come off their lows on somewhat improved sentiment. EUR/USD came just shy of 1.33 again, while AUD/USD retested 1.5 before both pairs retreated.

Ahead of the open, we are calling the Aussie market up 0.2% at 4641. This is just shy of yesterday's 4643.5 high and once again would see us trading right near 15-month highs going into the end of the year. We don't have anything to look out for on the local economic front, but we are likely to continue to hear some comments regarding the 'surplus' issue. Elsewhere in the region, Japan will remain in focus after the yen strengthened and the Nikkei fell despite the BoJ's decision to increase asset purchases. As we highlighted yesterday, any dips in USD/JPY and the Nikkei are likely to be used as opportunities to buy as market participants realise just how committed to stimulating the economy the new government is. USD/JPY dropped back to 83.86 and has since recovered to 84.40 as traders buy the dips. This will be supportive of the Nikkei which fell 1.2% yesterday as the yen strengthened. We are calling the Nikkei 1.2% higher at the open.

On a stock level, we expect to see a mildly softer start for BHP Billiton, with its ADR pointing to a 0.1% fall to $37. Iron ore remained steady at 135.50 and this will be positive for the miners going into the end of the week. However, gold miners will remain under pressure today after the precious metal declined significantly. As a result, stocks like Newcrest Mining, Medusa Mining and OceanaGold are likely to lag. High yielding stocks will probably continue outperforming, particularly in the banking space. As of yesterday's close, the local market is up 1.3% for the week and is 6.6% higher since its November 15 reversal.

Market	Price at 8:00am AEST	Change Since Australian Market Close	Percentage Change
AUD/USD	1.0485	-0.0003	-0.02%
ASX (cash)	4641	7	0.16%
US DOW (cash)	13311	87	0.66%
US S&P (cash)	1442.8	11.3	0.79%
UK FTSE (cash)	5972	30	0.50%
German DAX (cash)	7686	46	0.60%
Japan 225 (cash)	10163	120	1.20%
Rio Tinto Plc (London)	34.97	-0.10	-0.29%
BHP Billiton Plc (London)	21.49	0.04	0.17%
BHP Billiton Ltd. ADR (US) (AUD)	37.00	-0.04	-0.11%
US Light Crude Oil (February)	89.89	0.45	0.50%
Gold (spot)	1649.05	-18.5	-1.11%
Aluminium (London)	2063	-18	-0.88%
Copper (London)	7772	-98	-1.24%
Nickel (London)	17488	-105	-0.60%
Zinc (London)	2322	1	0.06%
Iron Ore	135.5	0.00	0.00%

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.

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