The premise of a Dubai rescue failed to keep European markets buoyant overnight, with equity markets finishing the day in the red as investors questioned the finer points of a bank led bailout. Dubai World said it is in constructive talks with banks on a debt restructure, which could see a delayed payment of around $26 billion of debt. However we did see positive signs of growth with Preliminary data for Euro-Zone Consumer Price Index rose 0.6 percent in November on year, against a decline of 0.1 percent for October.
In contrast, US markets found mild strength with the premise of a Dubai rescue keeping equity markets in the black. We also saw encouraging signs of growth with the Chicago Purchasing Managers Index rising to 56.1 in November from 54.2 in October. The moderate positive sentiment failed to translate into any convincing moves in the currency markets with the US dollar index which measures the dollar's value relative to six major foreign currencies, declining 0.1 percent to 74.81.
The Aussie dollar continues to stand firm ahead of the much anticipated rates decision to be announced at 14:30 AEDT. At the time of writing the Aussie is buying 91.70 US cents and continues to muster support as investors sway to a greater chance than not of a 25 bpt hike today. Yesterday we saw the TD Securities/Melbourne Institute add further weight for a third consecutive interest rate rise with the inflation gauge showing a 0.3 percent increase in November, representing an annual inflation rate of 2.1 percent. Keeping in mind the current interest rates at emergency levels in conjunction with economic indicators which have shown significant signs of improvement, we believe it to be likely the RBA will increase interest rates by 25bpts to 3.75 percent in today's meeting.