A flat start to trade is likely as traders weigh a third night of losses on commodity markets on Friday against skinny gains in US stocks following a German back-down on Greek debt.
The September SPI futures contract closed 3 points or 0.1% stronger at 4482 on Saturday morning as Wall Street inched to its first winning week in seven.
The S&P 500 closed 0.3% stronger on Friday and just half a point higher for the week but it was enough for the benchmark index to avoid the worst run of weekly losses in a decade. The Dow added 43 points or 0.36% on Friday and 52 points for the week. The Nasdaq lagged on Friday at -0.28%.
Signs of compromise on a second bailout package for Greece improved market sentiment, despite a wobble late in the session after ratings agency Moody's placed Italy's bonds on review for possible downgrade. German Chancellor Angela Merkel toned down demands that bond-holders take a haircut on Greek bonds, raising hopes that a new aid package will be announced early this week, cauterising concerns about European debt contagion.
"Having stared over the precipice of another financial crisis, the Germans have realised the implications of it," the chief market strategist for JPMorgan Funds in New the US told Bloomberg. "The Europeans are capable of reducing uncertainty coming out of Greece. Over the next few months we'll see better economic numbers. That should push the stock market higher."
Fears of a slowdown in the US were soothed by a pick-up in economic indicators that suggested renewed growth before the end of the year. The Conference Board's leading index, which assesses the outlook for the next three to six months, improved 0.8% in April - more than twice the median estimate. The report softened a disappointing consumer sentiment reading that came in well below forecasts.
An index of commodities fell for a third night to its lowest level since February as losses in energy products outweighed gains in select metals. Oil slumped to mid-February pricing, losing more than 6% for the week on concerns that a slowdown in the global economy will undermine demand. Crude oil for July delivery dropped $2.04 or 2% on Friday to US $92.91 a barrel.
Most industrial metals lost ground in London as caution ahead of this week's meetings over the Greek crisis overshadowed a fall in the US dollar. In London, copper rallied 0.1% and tin 1.3%, nickel was flat, while aluminium fell 0.9%, lead 1.9%, and zinc 0.6%. US copper lost 0.45%.
Precious metals benefitted from hedging as a rallying euro pushed the US dollar lower. Gold for August delivery put on $9.90 or 0.65% at US$1,539.80 an ounce. July silver added 35 cents at US $35.90 an ounce.
The major European markets benefitted from an easing of tensions over approaches to Greece's debt problem. Britain's FTSE rallied 0.28%, Germany's DAX 0.76% and France's CAC 0.83%.
TRADING THEMES THIS WEEK
EUROPE BACKS AWAY FROM THE PRECIPICE?: This is a make-or-break week for Greece and arguably the euro and the great European union experiment. Germany's backdown on Friday from demands that bondholders shoulder the burden of any new rescue package has hopefully cleared the way for a compromise deal to emerge from euro-zone meetings this week. European Union officials met in Luxembourg overnight in the first of several euro-zone meetings this week. Today's local market direction may depend on the outcome of that meeting and the response from US futures. It's naive to imagine that another aid package for Greece will cure Europe's debt woes, but it would go some way towards addressing the current crisis of confidence on global stock markets. Markets around the world look oversold in the short term and a Greek deal would at least buy some respite.
US SLOWDOWN: The Federal Reserve is expected to confirm on Wednesday night what recent economic reports have been telling us: the US economic recovery is flagging. Commentators predict the Fed will downgrade its growth forecast for the year from the bullish 3.1 - 3.3% figure it quoted in April to something closer to the 2.6% median growth rate from 51 economists polled earlier this month. Whether the market greets any change as old news remains to be seen.
ECONOMIC NEWS: Local news is relatively thin this week. The schedule includes: a monthly leading index of economic indicators and minutes from the last Reserve Bank monetary policy meeting (tomorrow); another leading index on Thursday; and a speech by RBA Assistant Governor Phil Lowe on Friday. Today's international action is dominated by Japan's trade balance (9.50 am AEST) and European meetings to discuss the Greek debt crisis. This week's key reports in the US include: existing-home sales (Tue); FOMC statement and Federal Funds rate (Wed); weekly unemployment claims, new home sales (Thu); and core durable goods.
