IG Markets Morning Prices

After yesterday's strong move up on the S&P it's no surprise to see markets pull back and consolidate those gains. The lead in for the Australian market is relatively benign with the S&P 500 closing at 1120, down 0.5%.

The talk on US trading floors overnight was whether the Fed will resume further Quantitative Easing measures (QE) at next week's FOMC meeting. There have been a number of different measures speculated on by traders as to what the Fed may look to do and certainly the economic data from the US economy suggests they have a good catalyst to do this. Overnight data showing Pending home sales dropped 2.6% in June, Factory orders down 1.2%, worse than expected and Personal Income and spending flat on the month.

With such weakness in the economy US yields on 2 year treasuries dropped to a new record low which in turn saw the USD/JPY cross trade down to 85.78, comments from Finance minister Noda did little to weaken the Yen as some had been hoping he would step in to help ease recent strength. The Euro and Sterling were also key beneficiaries from QE speculation.

Even though the Euro did rally up to 1.3262 it did little to help commodities with most base metals tracking the economic data and heading marginally lower. The S&P materials sector was down 1.7%, stocks like Freeport Mcmoran closed lower by over 1%. BHP's adr is indicating an open at a$40.95, down 3c. Rio Tinto was flat in US trade.

We are calling the broader market to open down 8 points at 4564.Given that Financials, Materials and discretionary were the worst performing sectors on the S&P it is hard to see our market gaining too much positive momentum. If we see the Shanghai composite resume its negative day's trade we could see losses accelerate when that index opens at 11.30, given the overnight strength in the Yen the Nikkei looks set for a softer open as well.

Look out for earnings from AXA and West Australian news today and on the economic side AIG service data and trade balance figures that could see modest volatility in the Australian dollar.