Australian shares have mostly positive leads for the day, with stimulus optimism following US Federal Reserve Chairman Ben Bernanke's Jackson Hole speech partly offset by news of a contraction in Chinese manufacturing.
The September SPI 200 futures contract rallied 24 points or 0.6% to 4332 on Saturday morning as US stocks and resources breathed a sigh of relief after the Fed chief kept QE3 on the table. However, some of that bullishness may be capped by a US public holiday tonight and the weekend release of Chinese industrial data that implied the world's second largest economy is slowing faster than expected.
US stocks wrapped up a third month of gains on Friday after Bernanke re-affirmed the Fed's readiness to pump money into the economy if employment does not improve. The S&P 500 put on 0.51% for the day but lost 0.3% during its second straight losing week. The Dow put on 90 points or 0.69% on Friday and the Nasdaq added 0.6%.
Bernanke stuck to his recent script during his much-anticipated speech at the Federal Reserve's annual Jackson Hole economic symposium on Friday, maintaining the possibility that the central bank may launch a third round of quantitative easing. The Fed chief said stubbornly high unemployment in the US was a "grave concern", raising hopes for further action at the next Fed meeting in two weeks.
"It certainly seems he's making an impassioned case for the ethicality of further monetary easing," the chief investment strategist at Key Private Bank told MarketWatch. "If he believes it, and the board believes it, and they continue to see the dire need for it, we're probably going to get something."
The prospect of further easing drove the US dollar lower and fuelled solid gains in commodities including oil, gold, and copper. Iron ore edged higher for the first time in two weeks.
Gold jumped to a five-month high as the prospect of inflationary pressures on the US dollar encouraged rotation into other stores of wealth. Gold for December delivery rallied $35.50 or 2.1% to US$1,692.60 an ounce. December silver surged $1.34 or 4.4% to US$31.79 an ounce.
Iron ore for delivery to the Chinese port of Tianjin, a commodity benchmark, inched up 70 US cents or 0.8% to US$89.40 per dry ton on Friday, raising hopes that the price is stabilising after a 50% slump this year.
"It does look like prices have probably overshot to the downside," the global head of commodities research at Credit Suisse in London told Bloomberg. "I would characterise what we're seeing as signs of stabilisation, but it's probably too early to say that we're out of the woods."
Oil rallied for the first session in three to seal a monthly rise of nearly 10%. West Texas crude for October delivery put on $1.94 or 2% to US$96.56 a barrel and a gain for the month of 9.6%.
Most industrial metals squeezed out gains. In London, copper advanced 0.6%, aluminium 1%, lead 1.1% and zinc 0.3%. Nickel lost 0.2% and tin 1.3%. US copper for September delivery put on one cent or 0.4% to US$3.46 a pound.
Most European markets advanced ahead of Thursday's European Central Bank policy meeting as investors anticipated the launch of a bond-buying program. Germany's DAX rallied 1.09%, France's CAC 1%, Spain's IBEX 35 3.13% and Italy's FTSE MIB 2.16%. Britain's FTSE eased 0.14%.
Analysts downgraded their growth expectations for China after the official manufacturing purchasing managers' index released on Saturday showed its first contraction in nine months. The National Bureau of Statistics PMI dropped to 49.2 last month from 50.1 in July. ANZ economist Liu Li-Gang warned that the economy will miss growth targets unless the central bank moves to support the economy. Read more here.
TRADING THEMES THIS WEEK
ALL EYES ON EUROPE: It's put up or shut up time this week for European Central Bank President Mario Draghi who sparked the recent rally in global equities with his promise to do "whatever it takes" to keep the euro-zone together. The ECB meets on Thursday and expectations are high that the central bank will flag a new sovereign bond-buying program to reduce borrowing costs for some of its beleaguered member nations. However, there is a possibility that the market will be disappointed, with a German court to rule on September 12 whether the permanent European bailout fund is constitutional.
REACTION TO CHINESE DATA: Bernanke more or less delivered on Friday but Australian investors may be reluctant to push the ASX too far this morning until they see how Shanghai reacts to Saturday's manufacturing disappointment. The official manufacturing index has been much more resilient than HSBC's private index over the last year and its slump into contraction is a significant development. It's just possible that the market will rally in the belief that the data will force further easing in China, but bad news is still bad news. Meanwhile, the final version of HSBC's index is due at 12.30pm EST and the official services index arrives at 11am.
AUSTRALIAN PULSE: An exceptionally busy week on world markets includes a swag of Australian news. This week's highlights include a rates decision tomorrow, GDP figures on Wednesday, employment on Thursday and trade data on Friday. See below for more detail.
ECONOMIC NEWS: This week's hectic Australian schedule includes: manufacturing index at 9.30am EST, inflation gauge at 10.30am, retail sales, job ads and company operating profits at 11.30am and commodity prices at 4.30pm (all today); current account, cash rate and Reserve Bank policy statement (tomorrow); services index, GDP (Wed); employment change, unemployment rate (Thu); and construction index and trade balance (Fri). Markets in the US are closed tonight for the Labor Day holiday that traditionally marks the end of summer. Highlights for the rest of the week include: ISM, construction spending, car sales (tomorrow); productivity, unit labour costs (Wed); weekly jobless claims, ISM non-manufacturing (Thu); and non-farm payrolls and unemployment rate (Fri).
