Australian shares erased most of Friday's heavy losses this morning as good news out of Dubai overshadowed disappointing local economic data.
At lunchtime the ASX 200 was up 118 points or 2.59% at 4690 after the United Arab Emirates' central bank said it would support foreign banks that face losses from Dubai World's possible default. The news reassured investors that Dubai's problems can be contained.
There was a huge bounce for the local banks, sending the Financials sector up 3.7%. Also strong: IT +3.1%, REITs +2.8%, energy +2.5%, materials +2.2% and metals & mining +2.2%.
Asian markets also recovered. Japan's Nikkei rose 2.4%, Shanghai 0.87% and Hong Kong's Hang Seng 2.62%. Dow futures were a bullish +54.
Local economic news was less supportive for the market: company profits slid, home sales declined and the case for interest rate rises strengthened.
Company profits slumped for a fourth straight quarter in the three months to September and are now nearly 20% lower than a year ago. Company gross operating profits fell by a seasonally-adjusted 2.1% in the September quarter, against economists' expectations of a 0.1% decline.
Elsewhere, a pick-up in inflation revealed this morning has strengthened the case for an interest rate rise tomorrow. The TD Securities/Melbourne Institute monthly inflation gauge showed prices rose 0.3% this month, following a 0.3% rise last month. The index also rose 2.1% in the 12 months to November, within the RBA's target band of 2 - 3% inflation.
TD securities senior strategist Annette Beacher said, "We believe the RBA will lift the cash rate by another 25 basis points tomorrow to 3.75 per cent, then re-assess the impact of plus 75 basis points of tightening on confidence and activity when the RBA Board reconvenes in early February 2010."
New home sales fell 6% last month as higher interest rates and a reduction in government stimulus took a toll. The Housing Industry Association's survey of major home builders showed its second consecutive monthly fall.
Crude oil futures rallied nearly 70 cents this morning to $76.61 a barrel. The spot gold price was little changed, down $1.30 to $1,175.40 an ounce this morning.
A very bullish morning as the shorts have the bejesus squeezed out of them. Wish I'd picked up on the Dubai news a little earlier... Grabbed ABC at the open - been waiting for it to retrace to these levels as it's a reliable swing trader. Also got a few EMS. Out of ALY from Thursday at break-even. Be VERY careful trading this one just now as the big buy orders are clearly props so a major holder can dump just-out-of-escrow shares at these levels. It's so blatant it's laughable.
