Daytrading August 5 pre-market

Morning traders. Thanks Trees and after-market regulars.

Market wrap:

Shares are looking at modest opening gains after a rescue plan for troubled Portuguese bank Banco Espirito Santo helped US stocks rebound from their worst weekly fall in two years.

The September SPI 200 futures contract edged up four points or 0.1% to 5488 as caution prevailed despite a strong rally in China yesterday and gains for BHP and Rio Tinto in US trade.

The S&P 500 pared last week's 2.7% tumble with a rise of 14 points or 0.72% overnight as Warren Buffett's market heavyweight Berkshire Hathaway beat profit expectations. The Dow put on 76 points or 0.46% and the Nasdaq added 31 points or 0.72%.

“This week’s action will be very important. If we snap back and rally it would mean that the bulls are in control,” Uri Landesman, president of US hedge fund Platinum Partners, told MarketWatch. “If not, then it would mean that buyers are waiting for markets to go a lot lower before stepping in. In this case, markets will continue to sell.”

Nine out of ten S&P 500 industry sectors rallied during a light night for economic data and corporate earnings. Class A shares of Berkshire Hathaway, which reported Q2 earnings after the close of regular trade on Friday, rallied 3.1% after the conglomerate raised operating profit by 10.5%.

Concerns over contagion risk from debt defaults by parent companies of Banco Espirito Santo were soothed by news that Portugal's central bank took control of the bank over the weekend. Bank of Portugal said it will split Espirito Santo into two banks, a 'good' bank and a 'bad' bank and pump government funds into the former. “It became imperative and urgent that a solution was implemented to guarantee deposits and safeguard the financial system,” Bank of Portugal Governor Carlos Costa's told MarketWatch. Read more here.
The rescue plan helped Portugal's benchmark equity index rally 0.98% but other European markets closed mixed as the potential impact of Russian sanctions continued to undermine risk appetite in Germany. The Stoxx Europe 600 index lost 0.23% as the DAX fell 0.61%, France's CAC gained 0.34% and Britain's FTSE eased 0.02%.

Wall Street's fear index, the VIX, eased, falling 13% overnight after surging 34% last week. The Russell 2000 index of small caps outperformed the broader market, rising 0.89%.

BHP and Rio Tinto both rallied 1.41 % in US trade as resource stocks with exposure to China outperformed the broader market after the Shanghai Composite hit a seven-and-a-half month high yesterday. Spot iron ore for import to China yesterday rose 20 cents to US$95.40 a dry tonne.

Base metals rallied after China's economic planning agency said the government will increase investment in the property sector and planned wide-ranging economic reforms.US copper for September delivery was recently up 1% or three cents at US$3.25 a pound.  In London, copper rose 0.8%, nickel 0.5%, aluminium 2.7%, lead 2.65% and zinc 2.4%. Tin lost 0.3%.

Oil broke a five-session losing run that ended on Friday with its worst weekly loss since January. West Texas Intermediate crude oil for delivery in September advanced 41 cents or 0.4% to settle at US$98.29 a barrel and was lately trading at US$98.36.
Gold fell for the fourth time in five sessions as the rally in risk assets dampened demand for havens. Gold for August delivery fell $5.90 or 0.5% to settle at US$1,287.70 an ounce and was recently trading at US$1,288.30.

The dollar was this morning buying 93.38 US cents, a quarter of a cent stronger than the same time yesterday.

TRADING THEMES TODAY

CAUTION AHEAD OF DATA DUMP: Limited gains in our futures this morning imply scepticism that this global retrace has bottomed or caution ahead of Chinese and domestic economic reports today. At home, the trade report at 11.30am EST is likely to be the highlight, with this afternoon's Reserve Bank rate policy meeting a long shot to produce any change. China releases a services activity report at 11.45am, which is not usually a market-mover but might have an impact today after a rival measure released on the weekend declined. Gold miners and utilities were weak in the US overnight, pretty much everything else went up.  

ECONOMIC NEWS: A busy domestic schedule today includes the AIG Services Index at 9.30am EST, trade balance at 11.30am and RBA cash rate and rate statement at 2.30pm. HSBC releases its Services PMI for China at 11.45am, which last came in at 53.1. Europe and the US both release services activity reports tonight. Other US highlights are the factory orders and economic optimism reports.

Good luck to all.