A rebound in US stocks and key resources on Friday has Australian shares pointed modestly higher this morning.
The September SPI 200 futures contract closed 13 points or 0.3% ahead at 4014 on Saturday morning as US banks shrugged off credit downgrades and the European Central Bank eased borrowing restrictions on euro-zone banks.
The S&P 500 bounced back from Thursday's steep decline with a rally of 0.72% that cut its loss for the week to 0.6%. The Dow recovered 67 points or 0.53% and the Nasdaq outperformed both with a jump of 1.18%.
Banks led the gains in the S&P 500 after Moody's cut the credit ratings of several US banks by less than analysts feared. The looming downgrades had cast a shadow over the sector since Moody's announced on February 15 that 17 banks around the world were under review.
"It was such a hard sell-off [on Thursday], a relentless sell-off with a lot of downside volume at the close," the chief investment officer of Solaris Asset Management in the US told Reuters. "Coming out of that, you usually get at least some kind of a rebound. As for Moody's downgrade, it was pretty much expected. The focus continues to be Europe at this point."
European markets played catch-up with Thursday's Wall Street plunge as news that German business sentiment deteriorated to weakest in more than two years offset ECB plans to relax collateral requirements to make it easier for the continent's struggling banks to borrow. Spain announced it will formally ask for bailout funds for its banks tonight. Germany's DAX fell 1.26%, France's CAC 0.75% and Britain's FTSE 0.95%.
Oil and gold recouped some of the losses that tipped commodities into a technical bear market on Thursday, but most industrial metals continued to slide in London. Oil was helped by a falling greenback and the rebound in US equities. West Texas crude for August delivery rallied $1.95 or 2.5% to US$80.15 a barrel but still lost around 5% for the week.
"Until a permanent solution is found to the euro-zone's problems, the global economy is likely to muddle through this crisis for a considerable while, and persistent bouts of risk aversion are likely to haunt the oil markets, making any sustained upside difficult," analysts at Barclays said in a note quoted on MarketWatch.
Gold arrested a four-session slide with a small gain on Friday, but its 3.8% loss for the week was its heaviest since December. Gold for August delivery put on $7.60 or 0.5% on Friday at US$1,573.10 an ounce. Silver dropped another two cents after settling at its weakest level since November 2010.
Copper traded in different directions in New York and London as a Chinese bank holiday weighed on volume. In London, copper lost 0.4%, aluminium 0.5%, lead 0.6%, tin 0.7% and zinc 1.3%. Nickel rallied 0.8%. US copper for July delivery put on two cents or 0.5% at US$3.31 a pound.
TRADING THEMES THIS WEEK
END OF YEAR SQUARING: Another turbulent financial year for the markets draws to a close on Friday. This is a time of year that heavily favours strongly-performing shares over the weak as investors lock in tax losses on declining stocks while institutional traders buy into the year's success stories so they can tell investors they had them in the portfolio. A lot of the serious selling and buying will have been done by now, but some are always late to the event. More bullish traders will look at positions in the most beaten-up "tax loss shares" late in the week for rebounds in July.
US SLOWDOWN: A heavy schedule of economic data this week will provide more insight into the seriousness of the slowdown in America's stuttering economy. So-called "negative surprises" have been on the rise over the last few months as Europe's debt crisis erodes business activity around the globe. This week's key reports are likely to be consumer confidence tomorrow night, durable goods on Wednesday, GDP on Thursday and consumer spending and sentiment on Friday.
EUROPE STILL CENTRE STAGE: Europe will likely continue to dominate the headlines this week with Spain due to formally request bailout funds for its banks tonight and with the European Council due to start a two-day meeting on Thursday. Spanish and Italian 10-year bond yields pulled back from critical levels late last week but remain near the danger zone.
ECONOMIC NEWS: A light week for domestic data includes: new home sales (Thu); private sector credit (Fri). Highlights this week in the US include: new home sales (tonight); consumer confidence (tomorrow); durable goods orders (Wed); weekly jobless claims, GDP (Thu); and personal income, consumer spending, Chicago PMI and consumer sentiment (Fri).
