Australian stocks are likely to start the day near where they ended their best week in three years after a flat finish on Wall Street on Friday.
The December SPI 200 futures contract closed three points or less than 0.1% weaker at 4295 on Saturday as an initial rally in the US ran out of steam in the final minutes.
The Dow rallied more than 120 points after advances in European equities and a sharp drop in the jobless rate in the US before fading to a loss of one point or 0.01%. The S&P 500's decline of 0.02% barely dented its strongest week since March 2009, a weekly gain of 7.4%.
The fall in the headline unemployment rate from 9% to 8.6% masked an increase in payrolls that fell marginally short of expectations. The economy created 120,000 jobs in November, just short of the 125,000 median estimate in a Bloomberg News survey. The drop in the jobless rate was mainly attributed to 315,000 people stopping looking for jobs.
"The market anticipated stronger-than-expected data and it was already discounted," the head of US equity strategy at Barclays told Bloomberg. "What typically happens with these macro surprises is they get to a point where expectations have moved up and you're no longer surprising the market."
Earlier, European markets rallied as German and French leaders called for closer fiscal union and arranged to meet tonight ahead of Friday's gathering of EU leaders. Britain's FTSE added 1.15%, Germany's DAX 0.74% and France's CAC 1.12%.
German Chancellor Angela Merkel called for tougher rules to ensure members of the EU stick to budgets. Investors were also cheered by plans to tackle the debt crisis by channelling loans to troubled states through the IMF.
Oil and most metals made headway despite a rebound in the US dollar. Oil increased its weekly gain to 4.3% in choppy trade, its seventh weekly rise in nine weeks. Crude for January delivery added 91 cents or 0.9% at US$101.12 a barrel.
Copper rallied for its first weekly gain in five weeks and aluminium ended the week nearly 7% stronger. In London, copper added 1.3% and nickel 5.4%. Zinc and lead closed near flat, aluminium fell 0.8% and tin lost 0.5%. US copper rallied 1.4%.
Gold edged higher amid speculation about the inflationary impact of last week's central bank stimulus announcements. Gold for February delivery improved $9.30 or 0.5% to US$1,749.10 an ounce.
TRADING THEMES THIS WEEK
EUROPEAN SUMMIT: With a light week ahead for US data, this week is likely to be dominated by leaks and speculation ahead of Friday's meeting of the 27 leaders of the European Union. German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to meet tonight to discuss plans for tighter fiscal union and budgetary discipline within the euro-zone. US Treasury Secretary Tim Geithner holds talks with the European Central Bank and Germany tomorrow, France and Spain on Wednesday and Italy on Thursday. In the meantime, investors will keep a close on European bond yields, which delivered a welcome retreat last week.
INTEREST RATES: There are two important rate decisions this week for local traders: a domestic cash rate announcement tomorrow afternoon and then a European Central Bank decision on Thursday night. Tomorrow's RBA decision has economists roughly evenly divided but futures markets imply a 96% probability of a 0.25 point cut in the cash rate to 4.5%. The ECB is strongly expected to announce its second cut in two months to cut the basic rate to 1%.
CHINA SLOWDOWN: Friday brings the monthly economic update from China, which is expected to underline a recent downturn in the economic outlook. Industrial production may prove the key figure as inflation becomes less of a concern. Other figures due on Friday include retail sales and fixed asset investment.
ECONOMIC NEWS: A heavy week for domestic news includes: the services index at 9.30 am AEST, inflation gauge at 10:30am, job ads and company operating profits at 11.30 am (all today); current account, cash rate and rate announcement (tomorrow); construction index and GDP (Wed); and employment change and unemployment rate (Thu). Highlights of a light week in the US include: ISM services, factory orders (tonight); weekly jobless claims (Thu); and trade balance and consumer sentiment (Fri).
