Australian shares are eyeing a new four-and-a-half-year high this morning after optimism over tonight's US jobs report helped Wall Street edge further into record territory.
The March SPI 200 futures contract ended the night session 20 points or 0.4% stronger at 5131 as a fifth night of gains pushed the Dow to its third all-time high of the week.
A decline in the weekly jobless claims average to a five-year low helped the blue-chip index rally 33 points or 0.23%. The S&P 500 gained three points or 0.16% and the Nasdaq added 0.3%.
The monthly average of first-time claims for unemployment benefits dropped to its lowest level since March 2008 after a drop of 7,000 last week to 340,000. Coming on the back of a strong private payrolls report on Wednesday, the report raised hopes that tonight's monthly government employment data will show that stubbornly high unemployment is finally starting to improve.
"There's an underlying element of support for the labour market and it's really driven by housing and potentially construction finally coming back," the chief investment officer of Cabot Money Management in the US told Bloomberg. "We're starting to see some health in some of those dormant areas of the economy, so quantitative easing and lower interest rates are finally having an impact and the stock market is of course telling us that."
Financials, industrials and resource stocks led the gains as traders targetted companies best placed to benefit from an improving economy. Utilities were the worst of the S&P 500's 10 industry groups during a "risk on" session. The Morgan Stanley Cyclical Index rallied 0.33% and the Russell 2000 index of US small caps added 0.49% to hit a new all-time peak.
European markets held onto modest gains despite anti-climatic meetings of the European Central Bank and Bank of England. Both central banks left rates on hold and offered no fresh stimulus measures. ECB President Mario Draghi said policy would remain "accommodative" but said European markets had taken Italy's election deadlock in their stride and remained on the path to recovery. Read more here. Germany's DAX inched up 0.26%, France's CAC 0.54% and Britain's FTSE 0.18%.
Draghi's comments boosted the euro against the US dollar, which in turn encouraged buying of dollar-denominated commodities as prices became more attractive to holders of other currencies. Oil settled at its highest level this month on optimism that Europe has seen the worst of its debt crisis. West Texas crude for April delivery was recently up $1.11 or 1.2% at US$91.54 a barrel after settling at US$91.56.
Industrial metals continued to rally off multi-month lows as optimism over the US outlook offset weak Chinese buying. US copper for May delivery was recently up three cents or 0.7% at US$3.52 a pound. In London, copper put on 1%, aluminium 1.3%, lead 0.9%, nickel 0.8%, tin 0.8% and zinc 0.8%.
Gold inched higher but was lately trading off its highs as Draghi's mostly upbeat perspective on Europe sucked some of the risk premium out of the market. Gold for April delivery was recently up $1.90 or 0.1% at US$1,576.90 an ounce after trading as high as US$1,584.90.
TRADING THEMES TODAY
EXTENDING THE RALLY: Another night, another record in the US. The big advances of the early stages of this rally have given way to more modest increases but the indexes keep grinding higher. Barring surprise news, there should be enough in the overnight leads to lock in another weekly gain for Australian shares and perhaps a new four-and-a-half-year closing high. Iron ore was flat yesterday, but base metals recovered some of their recent losses overnight. Small caps are going gangbusters in the US - if only we could say the same here.
ECONOMIC NEWS: No significant domestic news scheduled today. China is due to release trade balance data, exact time uncertain but usually around noon-1pm EST. Europe's main interest tonight lies in German industrial production data. The main event in the US is the monthly non-farm employment report and unemployment rate. Also due: average hourly earnings and wholesale inventories.
