Market wrap: Australian stocks are set to open at a one-month high after European bank stress test results helped Wall Street rally on Friday.
The local September SPI futures contract closed 40 points stronger at 4476, suggesting the market will start the week at its highest level since late June.
Wall Street breathed a sigh of relief after just seven of 91 European banks failed an "adverse test scenario" that assessed banks' ability to withstand sovereign risk shocks and a double-dip recession. Helped by U.S. take-over news and healthy corporate earnings, the Dow rallied 102 points or 0.99% on Friday to close 3.2% higher for the week. The S&P 500 added 0.82% and the Nasdaq 1.05%.
European futures have rallied over the weekend on the results of the bank stress tests, which were released after European markets had closed on Friday. One German, one Greek and five Spanish banks will need to raise more capital after failing to satisfy the Committee of European Banking Supervisors that they could withstand a serious European financial shock.
"There weren't any ugly surprises or major bank failures," an analyst at Action Economics told clients in a note quoted on MarketWatch.. "Indeed, many analysts thought the results were too 'warm and fuzzy', leaving the credibility of the test results suspect."
Nonetheless, Wall Street pressed on with the rally that began in early July as second-quarter company earnings continued to beat expectations. General Electric, American Express and Verizon all advanced after delivering reports, while McDonald's sank after warning that it was still waiting for a pick-up in demand. Also helping sentiment was news of a take-over offer for medicine-maker Genzyme.
Commodity prices were mixed, with oil and gold falling while most industrial metals advanced. Crude oil eased back from an 11-week high as the danger from Tropical Storm Bonnie in the Gulf of Mexico abated. Crude for September delivery fell 32 cents or 0.4% to $78.98 a barrel.
Gold finished a flat week with a modest loss on Friday as the bank stress tests failed to deliver as fresh round of safe-haven buying. The spot price closed $4.80 lower than Thursday's New York close at $1,189.70 an ounce.
Copper rallied for a fifth session to complete its best week since early February. In London, copper added 0.3%, lead 1.7%, nickel 0.8% and tin 3.4%. Zinc slipped 1.5% and aluminium 0.4%.
"Copper has shown these last few sessions that we are going to have some better growth here over the next 60 to 120 days," the head precious metals trader at a U.S. broker told Reuters. "Copper is doing what it should do. It's being a bellwether."
The major European markets closed little changed ahead of the release of bank test results. Britain's FTSE lost 0.02% while Germany's DAX added 0.39% and France's CAC 0.18%.
TRADING THEMES THIS WEEK
CLIMBING THE WALL OF WORRY: It looks like a healthy start to the week, with futures suggesting our market should lock in a "higher high" today to improve the argument that a short-term bottom is in and our market is recovering from the three-month decline that started in April. Sentiment in the U.S. is likely to continue to swing between earnings-driven optimism and macro-economic gloom if the recent run of deteriorating economic reports continues. However, the market's performance since the earnings season began shows investors are willing to ignore the big picture so long as most individual companies beat expectations. That suggests we could be in for another positive week.
U.S. CORPORATE EARNINGS: We're entering one of the biggest weeks for second-quarter earnings reports. 157 S&P 500 companies and four Dow components will report before the week is out. The results to date have this reporting season on track to match last quarter as the best yet in terms of companies beating earnings estimates. Just 12% of the 175 S&P 500 companies that have have reported have missed estimates. Tuesday and Wednesday are the heaviest days this week, with reports due from Boeing, Eastman Kodak and Visa.
ECONOMIC NEWS: The local calendar offers the quarterly producer price index at 11.30 am today, the monthly leading index tomorrow, the quarterly consumer price index on Wednesday and monthly private sector credit on Friday. The key milestones in the U.S. are new-home sales tonight, consumer confidence tomorrow, durable-goods orders on Wednesday, jobless claims on Thursday and GDP, regional manufacturing and consumer sentiment on Friday.
