A boom session on world markets should see Australian shares surf a wave of optimism over US budget talks this morning.
The December SPI 200 futures contract ended the night session 28 points or 0.7% ahead at 4407 as futures traders bet that the ASX yesterday pre-empted some of the overnight gains in equities and commodities.
The S&P 500 jumped 1.99% for its biggest rise in two months as strong housing data and signs of a new Greek debt deal added fuel to a rally that began with Friday's promising opening to fiscal cliff negotiations in Washington. The Dow surged 208 points or 1.65% and the Nasdaq put on 2.2%.
"I think the surprise is going to be a more cooperative environment from our [political] leaders going forward," the chief investment strategist at Raymond James & Associates in the US wrote on MarketWatch. "Maybe that is what the stock market sniffed out last Friday with its intraday upside reversal on heavy volume."
Commentators spoke of a more conciliatory tone in the air as polls indicated public opinion would hold Republicans mostly to blame if "fiscal cliff" talks founder. The talks are aimed at watering down a US$607 billion package of tax raises and spending cuts that will come into force on January 1 unless a compromise is agreed.
House-builders were among the stand-out sectors in the US after separate reports showed confidence among builders hit a six-year high as house sales rallied 2.1% last month. The reports continued the recent run of signals that the housing market is turning after years in the doldrums.
International developments also added to the optimistic market mood. A European Central Bank official said euro-zone finance ministers are likely to sign off on a two-year funding plan for Greece tonight, and Egyptian mediators claimed to be close to securing a truce between Israel and Hamas following days of missile exchange in the Gaza Strip and Israel.
European markets swept to their best intraday returns since the European Central Bank revealed its unlimited bond-buying program on September 6. Germany's DAX climbed 2.5%, France's CAC 2.95% and Britain's FTSE 2.36%.
Traders abandoned the security of the US dollar for risk assets, including oil and metals, helping the Australian dollar put on around three-quarters of a cent to US$1.0412. Oil benefitted from the escalating crisis in Gaza and the danger that Iran might be drawn into the conflict. West Texas crude for January delivery was lately up $2.26 or 2.6% at US$89.19 a barrel.
Gold ran with risk assets, but trailled returns in industrial metals, silver and platinum. Gold for December delivery was lately up $16.70 or 1% at US$1,731.40 an ounce. December silver put on 73 cents or 2.3% to US$33.10 an ounce.
Copper hit a two-week high during a strong session for base metals. US copper for December delivery was recently up eight cents or 2.2% at US$3.53 a pound. In London, copper added 2.6%, aluminium 1.4%, lead 2.1%, nickel 3.05%, tin 1.7% and zinc 1.3%.
TRADING THEMES TODAY
RISK ON: The pendulum swings quickly when the market is hostage to news headlines. I suggested yesterday lunchtime that there was a move into risk assets underway but I failed to grasp the momentum behind it. Apologies for not reading the runes better. If anything our futures look a little underdone this morning - the opening gains could be more substantial than the SPI suggests. However, it's worth noting that this rally is unlikely to be sustained unless Congress defies all expectations by reaching a quick deal on the budget. History suggests otherwise, and there are likely to be some sharp swings over the next few weeks. Rallies in oil and metals should support the resources sector this morning. Gains in the US were broad enough to lift pretty much everything except a few defensive stocks.
ECONOMIC NEWS: The Conference Board's leading index of economic indicators is due at 10am EST, followed by the minutes from the last Reserve Bank meeting at 11.30am. European finance ministers meet tonight to discuss a funding deal for Greece. More housing data, including building permits and housing starts, is due tonight in the US. Federal Reserve Chairman Ben Bernanke is due to deliver a speech on "The Economic Recovery and Economic Policy".
