Market wrap: The share market appears set to recoup most of yesterday's losses after a night of modest gains on Wall Street and falls in oil and precious metals.
The December SPI futures contract ended the night session 19 points or 0.4% stronger at 4719 as futures traders bet that yesterday's 0.6% fall on the ASX 200 was overdone.
U.S. equities wobbled in and out of positive territory as the initial euphoria over a tax deal continued to fade and the possibility of a weekend interest rate rise in China weighed on resource stocks. However, the S&P 500 broke decisively higher in afternoon trade to its highest close of the year, rising 0.37%. The blue chips of the Dow Jones Industrial Average closed 13 points or 0.12% ahead and the Nasdaq again outperformed both, rising 0.41%.
"It's a mixed bag," a money manager at Thornburg Investment Management in the U.S. told Bloomberg. "The tax-cut deal is good news for the economy. However, investors are reacting to short-term news. People are concerned about the fact that China needs to cool down. In my view, there won't be a dramatic slowdown, but investors will be reacting to that concern."
China's decision to bring forward the release of its monthly economic update by two days to Saturday raised speculation that it will hike interest rates in response to rising inflation. Yesterday's announcement contributed to falls in Asia, where Shanghai eased 1% and Hong Kong by 1.4%. (See more below.)
The U.S. dollar made further gains as Treasury yields surged on the prospect that further tax cuts in the U.S. will exacerbate the bloated national deficit. The dollar index, which tracks the greenback against a basket of currencies, was recently up 0.2%.
Resource stocks listed in the U.S. were hurt by weakening oil and precious metal prices, the rising U.S. dollar and fears that a Chinese rate rise will temper demand for raw materials. BHP fell 1.3% in U.S. trade, RIO 1.1% and AWC 0.2%.
Silver tumbled more than 5% and gold 2% as profit-taking accelerated following yesterday's 30-year high (silver) and record high (gold). Silver for March delivery was recently down $1.37 or 4.6% at $28.43 an ounce. Gold for February delivery was down $27.20 or 1.9% at $1,382 an ounce
Oil retreated following a rise in U.S. inventories but moderated its losses as the session advanced. Crude futures were recently down 24 cents or 0.3% at $88.47 a barrel.
Tightening supplies helped most industrial metals resist falls among other hard commodities. In late trade in London, copper was up 1.2%, aluminium 2.7%, lead 0.5%, nickel 0.3% and tin 1.6%. Zinc was down 1%.
The major European markets again ended mixed. Britain's FTSE fell 0.24%, Germany's DAX 0.37% and France's CAC rose 0.56%.
TRADING THEMES TODAY
EDGING UP: A mixed night for the key sectors of interest for our market. On one side of the ledger we had oil down, gold and silver down, U.S. resource stocks down. On the other, U.S. share indexes up, U.S. financial stocks up, industrial metals mostly up. On balance, it looks like a cautiously positive day ahead, with the big banks likely to lead and some of the miners under pressure.
CHINESE RATE RISE?: There is speculation that China will raise interest rates this weekend, following yesterday's announcement that its regular monthly economic up-date has been brought forward by two days to Saturday. The move follows a government statement last week that its monetary policy will move from "moderately loose" to "prudent" next year. Shares fell yesterday in Shanghai and Hong Kong on speculation that a high inflation reading will prompt the central bank to raise rates. Higher Chinese interest rates have negative implications for consumption and therefore the need for Australian raw materials, but the market has had some time to get used to the idea. Nonetheless, our miners may come under some pressure today.
ECONOMIC NEWS: Monthly employment figures are due at 11.30 am. Jobs are also the main event tonight in the U.S., where weekly unemployment claims are hotly anticipated, following last week's surprisingly large fall in claims and then Friday's disappointing monthly jobs report. Also due tonight: wholesale inventories and natural gas storage.
