Market wrap: A flurry of global mergers fuelled a third night of gains on Wall Street and has set up Australian shares for another positive start to trade.
The September SPI futures contract ended the night session 25 points or 0.6% stronger at 4295 as US stocks posted their biggest three-day rally in more than two years. Oil and most metals also advanced.
The S&P 500 extended its rally to 7.5% in three sessions with a 2.18% rise overnight as Google, Time Warner Cable, Bank of America, Transocean and Cargill announced deals that raised hopes that the worst of this month's volatility has passed. The Dow added 214 points or 1.9% and the Nasdaq gained 1.88%.
"We're bouncing off the bottom and people don't feel terrible about [share price] valuations," a portfolio manager at Alpine Mutual Funds in the US told Bloomberg. "The M&A deals make investors feel more comfortable because it shows that this meltdown isn't going to wipe out valuations forever."
Google announced a US$12.5 billion bid for Motorola Mobility Holdings and Bank of America said it will sell its Canadian credit-card business to Toronto-Dominion Bank.
Investors once again looked beyond a tepid set of overnight economic reports. Manufacturing in the New York area decreased for the third straight month and confidence among house-builders remained at a historically low level. Also dampening sentiment, Moody's Analytics slashed its growth outlook for the US for the second half of the year from 3.5% to to 2%.
The weak data dragged the US dollar lower and encouraged buying of alternative assets, including commodities. Gold was one of the prime beneficiaries, reversing a three-day decline. Gold for December delivery rallied $25.50 or 1.5% to US$1,768 an ounce. September silver added 76 cents or 2% at US$39.87 an ounce.
Oil reached its highest level in almost two weeks. Crude for September delivery put on $2.29 or 2.7% US$87.67 a barrel. However, analysts warned the flaccid global economic outlook would cap gains in the months ahead.
"After the strong waves of last week, the market has calmed somewhat now and appears to have quickly adjusted to the new reality, namely weak economic growth," Commerzbank analysts wrote in a note to clients quoted on MarketWatch. "Even if the short-term trough appears to be reached, weak physical demand should keep oil prices in check."
Industrial metals mostly gained in London with the turnaround in equities and news that Japan's economy shrank less than expected following the March earthquake and tsunami. In London, copper added 0.8%, lead 1%, nickel 0.2% and zinc 0.7%. Aluminium fell 0.55% and tin 0.9%. US copper was recently up 0.45%.
The major European markets advanced as beaten-up bank stocks continued to recover ahead of tonight's crisis meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy. Britain's FTSE added 0.57%, Germany's DAX 0.41% and France's CAC 0.78%.
TRADING THEMES TODAY
READYING FOR A REST?: At this morning's open, the ASX will have piled on more than 500 points in six sessions since last Tuesday's low. That's a remarkable performance by any measure and suggests a market in need of a breather. The ASX pre-empted some of the overnight action yesterday and has front-run the turnaround on global markets over the last week, so it wouldn't surprise to see some profit-taking in the next session or two. Much may depend on two lunchtime economic reports: the minutes from the last Reserve Bank meeting at 11.30 am AEST (see below) and the monthly leading index from China at noon.
CLUES ON INTEREST RATES: The minutes from the latest Reserve Bank monetary policy meeting are due at 11.30 am AEST and will be scoured more closely than usual for signs to which way interest rates are heading. The central bank has to balance a strong mining sector and rising inflation against a recent downturn in economic signals from other parts of the economy and volatility on international markets. The market is betting that the next move is down (seen as broadly supportive for equities) and will examine the minutes for confirmation.
ECONOMIC NEWS: Today's schedule include the minutes from the July Reserve Bank meeting at 11.30 am AEST and a leading index from China at noon. Tonight's emergency meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy may prove the most important international event. The schedule in the US includes building permits, housing starts, industrial production, import prices and the capacity utilisation rate.
