Market wrap: A late rally on Wall Street points to advances for local shares this morning, but concerns over Chinese inflation may limit gains.
Futures traders expect our market to open 9 points higher after Wall Street overcame early losses and broke into positive territory in the final hour of trade. The March SPI futures contract closed at 4828.
U.S. equities were essentially range-bound for much of a fourth day after jobless claims matched expectations and yesterday's Chinese economic data raised the prospect of rate rises in the world's fastest-growing economy to curb inflation. But a late break saw each of the three major indexes lock in gains of 0.4%.
China's inflation rate spiked to 2.7% last month from 1.5% in January. Deutsche Bank's chief China economist Jun Ma said the news increases pressure for an interest-rate hike in the next two months, placing downward pressure on demand for overseas commodities.
"Most of these data are stronger than expectations and, in our view, point towards growing risk of economic overheating," Ma said.
The U.S. Labor Department's count of first-time jobless claims dropped for a second week, but the four-week moving average of claims increased to 475,500. Another report showed the U.S. trade deficit fell in January because of declines in imported oil and cars.
A U.S. analyst said the recent positive trend was intact despite four days of minimal change on major stock indexes.
"We're in a nice little up-trend. We were at the 1,040 level on February 5, and here we are just under 1,150, so we're 100 points higher five weeks later. Investors are now realising we were oversold at 1,040, but a lot of the issues, including China, were overblown," Phil Orlando, equity strategist at Federated Investors told MarketWatch.
Commodity prices were mixed as the U.S. dollar slipped against a basket of major overseas currencies. The dollar index was recently down 0.22% and has essentially gone sideways this week.
Crude oil futures initially retreated after the Chinese data but recently followed U.S. equities north to $82.25 a barrel, a gain of 0.2%. Gold is little changed from yesterday. The spot price was recently at $1,109.30, just $1.10 up on Wednesday's New York close.
Chinese economic data weighed on industrial metals but copper was supported by further evidence of falling stockpiles in London warehouses. Traders said copper stocks have been falling for nearly two weeks. In London, copper rallied 0.2% but other metals weakened. Aluminium dropped 0.3%, lead 1.5%, nickel 1.2%, tin 1.8% and zinc 1.8%.
Weak mining stocks dragged the major European stock indexes to losses. Britain's FTSE retreated 0.41%, Germany's DAX 0.17% and France's CAC 0.37%.
TRADING THEMES TODAY
CHINESE INFLATION: Yesterday's sharp rise in inflation raises the prospect of further government cooling measures in the world's fastest growing economy, with a consequent threat to demand for Australian commodities. Mining stocks in Europe were mostly lower overnight. U.S. investors were less concerned, so our market may well shrug it off. Canada's resource-stock heavy indexes were little changed overnight and that may be the likeliest outcome for our market today, with gains in financials cancelling any weakness in resource sectors.
EXPLOSIVE MOVE COMING?: Global markets have been unusually directionless this week as they consolidate several weeks of healthy gains. The XJO has barely moved for three days and today's futures don't point to much change today. However, these periods of consolidation are often succeeded by explosive breakouts. Alan Farley's excellent book "The Master Swing Trader" has strategies built on identifying these quiet periods (or "empty zones" as he calls them) and then buying/selling these breakouts. I expect next week to offer great opportunities whichever way the market breaks.
ECONOMIC NEWS: There is nothing major scheduled locally today but the U.S. delivers two possible market-movers in tonight's monthly retail sales and consumer sentiment. Also tonight: business inventories, inflation expectations and a speech by Treasury Secretary Tim Geithner.
