Market wrap: Surging resources and fresh five-month highs for U.S. equities point to a solid start to local trade.
The December SPI futures contract rallied 30 points or 0.65% this morning to 4666 as upbeat U.S. corporate earnings and solid economic numbers out of Asia fuelled optimism overseas. Oil and metals kicked higher as the U.S. dollar resumed its decline.
The S&P 500 advanced for a fourth straight day but trimmed gains, closing 0.71% stronger after earlier hitting its highest level since early May. The Dow added 76 points or 0.69% and the Nasdaq 0.96%.
"The market's got a lot of tailwinds operating right now," the chief investment officer at Eastern Investment Advisors in the U.S. told Bloomberg. "Earnings should be good, and that should be a catalyst for the market, and everyone's looking ahead to [Federal Reserve monetary easing]. All risk assets have responded dramatically just to expectations."
The third-quarter earnings reporting season in the U.S. is off to a solid start, with reports from Alcoa, railway giant CSX, JP Morgan and Intel surprising to the upside.
"The initial signs from the bellwethers are that this third-quarter earnings season is going to be a positive and help lift the overall stock market," the chief market strategist at Banyan Partners in the U.S. told Bloomberg. "The slow growth we're seeing so far hasn't done a tremendous negative impact to these firms."
Alcoa, Alumina, Rio Tinto and BHP rallied overnight after news of record Chinese currency reserves yesterday fuelled a run on raw materials. The Chinese news completed a hat-trick of bright economic reports out of Australasia yesterday, with Australian consumer confidence rebounding and Japanese machinery orders spiking higher.
The U.S. dollar resumed its downtrend, hitting its lowest level since January against the euro. The dollar index, which measures the greenback against a basket of currencies, was recently off 0.4% at 77.07.
Buyers continued to flood precious metals as an alternative store of wealth. Gold hit its 16th record high in five weeks and silver marked another 30-year peak. The spot gold price was recently $22 higher than Tuesday's New York close at $1,372.50 an ounce. December silver closed 78 cents or 3.4% ahead at $23.93 an ounce.
Industrial metals benefitted from the weak dollar and the upbeat news out of China. Copper rallied to a 27-month high, tin hit a new record and lead its highest point since January. In late trade in London, copper was up 0.2%, lead 2.5%, nickel 1.4%, tin 1% and zinc 1.7%. Aluminium was down 0.9%.
Oil bounced back from two days of falls after China reported record imports last month. Crude futures were recently up $1.31 or 1.6% at $82.98 a barrel.
European markets had a strong session but continue to lag the gains in the U.S. Britain's FTSE rallied 1.51%, Germany's DAX 2.06% and France's CAC 2.12%.
TRADING THEMES TODAY
THE RALLY NO ONE BUT AMERICA WANTS TO BUY: Another strong night in the U.S. should set up our market for a healthy rise today but our market has indicated over the last two sessions that it's reluctant to follow. There's a significant disconnect between Wall Street and the rest of the world's markets. Consider this: today's rally left the Dow Jones Industrial Average a little more than 100 points off its mid-April 2010 high. The ASX 200, on the other hand, is more than 350 points off the April high. We're not alone. European markets also trail the gains on Wall Street by considerable margins. These disconnects, even when there are obvious causes like the promise of quantitative easing in the U.S., don't last. Something will eventually give. Either we have a lot of catching up to do or Wall Street is coming back. Our market's performance this week suggests local investors are betting on the latter.
RAW MATERIALS: This theme has been constant for the last month and a half. Any alternative store of wealth to the U.S. dollar is "hot", and that includes gold, silver, copper, tin and oil. So long as the Chinese growth story is intact and the U.S. Fed Reserve continues to promise to print money, effectively, the outlook for our miners is strong.
ECONOMIC NEWS: Local inflation expectations are due at 11 am. Chinese foreign direct investments are scheduled for today - no specific time. It's a big night in the U.S., with several potential market-moving reports: unemployment claims, the producer price index and trade balance. Crude oil inventories and natural gas storage are also scheduled.
