The Australian dollar has opened this morning around the 1.0200 level after equity markets reacted positively to the conclusion of the EU summit on the weekend.

Australia: With the AUD trading in a band of almost 3 cents versus the USD on Friday, the EU summit ended and all major equity indices generally moved higher with the Dow up by 1.55% to 12,184 and the S&P 500 up by 1.7% to 1255. European indices were all higher as well after new fiscal rules were agreed to at the EU summit that annual structural deficits should not exceed 0.5% of GDP.

Although many questions remain about how this will be implemented and enforced the markets focused on the positive news. Adding to the positive tone was a better than anticipated consumer confidence survey out of the US. A slew of Chinese data was released on Friday which has huge implications for the

Australian economy. CPI fell to 4.2% yoy in November while PPI inflation declined to almost a two year low at 2.7% yoy. This was substantially down from the 5% figure in October. Export growth did not slow as much as expected (13.8% yoy which was higher than the growth of 10.9% expected yoy).

It looks as if Q4 growth will be around 9% pa and the prospect of a further reduction in bank reserve ratios in the near term will help keep Chinese growth at a similar level. Today in Australia we will see the release of housing finance and the trade balance for October. The trade balance is estimated to fall from $2.564b in September to $2b in October.

Majors: EU leaders agreed over the weekend to work together to reduce structural deficits among the member nations and added EUR200b of funding to the IMF. The UK will not be part of this agreement which will not take the form of a formal treaty and is expected to be completed by mid-2012.

Although the EU member nations except for the UK have agreed to work together with greater fiscal discipline in the future, there
are many questions that remain. It is apparent that growth in the EU over the next few years will be low and the whole of the region may dip into recession.

The problems of slow or negative growth and high debt levels will take years to cure. In the US the University of Michigan consumer confidence survey jumped to 67.7 from 64.1 as the numbers and sentiment continue to improve in the US.