Risk assets rallied on Friday despite a shortened trading day on Wall-Street. There was nothing specific driving risk assets higher, but it generally seems investors are looking at the US and European situation with a glass-half-full approach. Of course there are still a few hurdles ahead with the European finance ministers meeting later today and fiscal cliff talks continuing. Should both events be concluded successfully, one can only assume we will be in for a good run into the end of the year, and possibly get back to the levels we were trading at in the lead up to the US presidential election.
On the economic front, we continue to see a strong performance in US economic data, while China is stabilising. We finally saw glimpses of improvement in European economic data last week and this could have had a bigger influence on markets if it wasn’t for the Greece situation. There were some big moves in the risk currency space with rallying back above 1.04 to a high of 1.047. pushed through 1.29 and was just shy of 1.3 and remains fairly well bid ahead of the European finance ministers meeting.
Ahead of the open, we are calling the aussie market up 0.5% at 4436. After the big improvement in risk appetite, it should be a good start to the week for the Aussie market. It will be a quiet day on the local economic front with nothing significant on the calendar. There will be a lot of pressure on European leaders to deliver when they meet today.
On the upside, last week’s high of 4428 (in the underlying cash market) was the exact 38.2% retracement of the recent sell-off from 4581 to 4334, so a close above here could see the 61.8% retracement of the same move at 4487 come into play. Downtrend support drawn from the October 18 high intersects at 4471, so while this is unlikely to be tested today it is a level worth keeping on the radar.
On a stock level, we expect to see a firmer start for BHP Billiton, with its ADR pointing to a 0.4% rise to $33.90. Commodities had a solid session on Friday and this will be supportive of resource names. Gold was back above $1750 and this is likely to lead to a strong recovery in some of the precious metal stocks. Discovery Metals will be in focus after the board recommended shareholders to reject Cathay Fortune’s takeover offer. Cabcharge will be one to watch after a sharp sell-off on Friday due to some changes announced by the RBA concerning revised surcharging standards.