Shares look set to extend yesterday's bull run to a 20-month high after strong economic data propelled US stocks to fresh five-year peaks.
The March SPI 200 futures contract rallied 34 points or 0.7% to 4755 as oil and metals anticipated an improved Chinese economic growth report later today, supported by the lowest first-time unemployment claims in the US since the GFC.
US stocks broke out of their recent consolidation zone overnight, pushing the Dow Jones Transportation Average to a record high as traders backed the stocks most exposed to an improving economy. The S&P 500 rallied 0.57% to its strongest close since late 2007. The Dow put on 85 points or 0.63% and the Nasdaq added 0.59%. The Russell 2000 index of small caps, another traditional measure of risk appetite, surged 0.9% to a new record high as the VIX, Wall Street's "anxiety gauge" neared a five-year low.
"Having consolidated really for the last two weeks, the fact that we broke out, I think that that's sucking in quite a bit of money," a portfolio manager at the TEAM Asset Strategy Fund in the US told Reuters.
The gains came on the back of unexpectedly strong housing and jobs numbers, which overshadowed a manufacturing slowdown around Philadelphia and the rumbling debt ceiling debate. Initial applications for jobless benefits declined by 37,000 to a seasonally-adjusted 335,000 last week, the best reading since January 2008. Housing starts jumped 12.1% last month to their strongest level in four and a half years. The only blemish was a deterioration in the Philadelphia Fed's manufacturing index, which sagged to -5.8 this month from +4.6 in December.
The economic news helped steer the spotlight off disappointing fourth-quarter earnings reports from financial heavyweights Citigroup and Bank of America. Shares in BoA slumped 4.4% as its quarterly profit skidded 63%. Citigroup lost 2.9% after missing profit targets.
European markets were already celebrating some strong domestic profit results before the US data gave them a late push. Germany's DAX advanced 0.57%, France's CAC 0.96% and Britain's FTSE 0.46%.
Oil broke to its highest level since September after a militant attack on an Algerian natural gas plant injected a new risk premium. West Texas crude for February delivery was lately $1.07 or 1.1% ahead at US$95.31 a barrel after touching US$96.04.
"The nasty reawakening of geopolitical tensions always carries a premium for energy prices," a senior oil-market analyst at the International Energy Agency told MarketWatch.
Most base metals rallied ahead of today's Chinese GDP report (see below). US copper for March delivery was recently up five cents or 1.5% at US$3.66 a pound. In London, copper climbed 1.25%, aluminium 0.1%, lead 0.8%, nickel 0.8% and zinc 0.7%. Tin eased 0.2%.
Gold advanced with the risk assets overnight as Philadelphia's manufacturing woes and trouble in Algeria offset the generally upbeat tone in the US. Gold for February delivery was recently ahead $3.80 or 0.2% at US$1,686.90 an ounce.
TRADING THEMES TODAY
BREAKOUT CONTINUES: Index breakouts on the ASX yesterday and overnight in the US confirm that this bull run is alive and well. There may be signs of fatigue at the speculative end of the market, but the big end is still running hard. Overseas investors barely blinked at the dumping of Rio Tinto's CEO yesterday, so that's unlikely to be a hindrance today. I'd anticipate a strong opening hour here, then a little profit-taking before the 1pm EST release of Chinese GDP data - unless, of course, the Shanghai Composite signals a strong result. Oilers were among the picks in the US as crude neared a four-month high, but an index of precious metals miners eased as traders questioned whether demand will hold up if the global economy accelerates. Shares in Intel have just rallied 1.8% in after-market trade, the first plank in a potential platform for more gains in the US tomorrow night.
CHINA REVIVAL: More evidence is expected around lunchtime EST today that the rebound in the Chinese economy is gathering pace. GDP data for the last three months of last year are expected to show that economic growth accelerated to 7.8% from 7.4%, ending seven quarters of decline. Monthly readings on industrial production and retail sales are also expected to show fractional improvement, while fixed asset investment should be steady. The figures are due at 1pm EST. Read more here.
ECONOMIC NEWS: No significant domestic data scheduled today. China releases GDP, industrial production, retail sales and fixed asset investment figures at 1pm EST. A quiet night in the US for scheduled data includes preliminary consumer sentiment and inflation expectations.
