Market wrap: A wild rally on Wall Street fuelled by upbeat earnings and improved employment news has set up a bright start for Australian shares.
The September SPI futures contract ended the night session 72 points or 1.7% stronger at 4165 as US shares staged their fourth 400-point+ swing this week. Oil and industrial metals rebounded, but gold's record run was halted.
US shares clawed back Wednesday's heavy losses as an unexpected drop in new jobless claims and well-received earnings reports from Cisco and News Corp soothed fears about a US economic slowdown. The Dow ran more than 500 points higher before a little late profit-taking cropped its gains to 423 points or 3.95%. The S&P 500 put on 4.63% and the Nasdaq 4.63%.
Investor sentiment was boosted before the start of trade by news that first-time applications for jobless benefits fell to a four-month low last week. The 7,000 decrease defied the increasingly gloomy expectations of economists.
Cisco and News Corp delivered a timely reminder that most companies beat analysts' expectations during the latest quarterly earnings season. Cisco was rewarded with its biggest share-price rally in nine years and News Corp with its best rise in nearly three years.
"If there is no [US] recession, stocks are discounting an awful lot of bad news right now," the chief investment officer of Palisade Capital Management told Bloomberg. "The jobless claims report is another indication that the economy is growing at a moderate pace. Still, the market is very fragile... Is this a repeat of the 2008 financial crisis? I don't think so."
A pick-up in risk appetite saw the Australian dollar, oil and base metals rally, while the greenback and precious metals declined. The Aussie was lately buying US$1.035, a rise of more than a cent and a half. In US trade, BHP surged 6.5%, Rio Tinto 5.8% and Alumina 3.5%.
Copper delivered its biggest rally in more than eight months on signs that lower prices have helped buying activity. In London, copper rallied 3.4%, aluminium 1%, lead 4.8%, nickel 3%, tin 4% and zinc 4.5%. US copper was recently up 4.1%.
Oil continued to improve from 10-month lows set earlier this week. Crude for September delivery added $2.57 or 3.1% at US$85.47 a barrel.
"The market bottomed a couple of days ago," a director at BNP Paribas in the US told MarketWatch. "Markets got extremely oversold and traders like to buy energy at these lower levels."
Gold's three-day winning run was stymied by profit-taking and margin increases at the US's main metals exchange. Gold for December delivery eased $17 or 1% to US$1,767.70 an ounce. September silver fell 61 cents or 1.6% to US$38.72 an ounce.
A recovery in beaten-up banks stocks helped the major European markets recover from Wednesday's sharp falls. Britain's FTSE added 3.11%, Germany's DAX 3.28% and France's CAC 2.89%.
TRADING THEMES TODAY
SHORT-TERM BOTTOM?: This manic-depressive market would drive anyone to drink with its wild swings, but at least last night's 400-point move was in the right direction. Trading volumes in the US are easing, which may be a sign that some of the heat is coming out of the market, and more stable conditions are pending. That remains to be demonstrated. What's clear is that US shares have twice rejected lower levels this week and that's a broadly bullish sign. So what does that mean for our market? Australian shares pre-empted much of last night's overseas gains yesterday, so I'll be cautious about chasing prices this morning. There are signs that currency movements are playing a big role in local market action, and the overnight jump in the local dollar means overseas buyers will be sitting on fat gains and some will likely cash in. Oilers and most miners should benefit from commodity bounces overnight, but gold/silver miners may see profit-taking.
ECONOMIC NEWS: No scheduled domestic reports today. The consumer is the main focus in the US tonight. The menu includes monthly retail sales, core retail sales, preliminary consumer sentiment, preliminary inflation expectations and business inventories.
