Shares are set to erase yesterday's modest loss after evidence of growing support within the Federal Reserve for fiscal stimulus helped US stocks break even overnight.
The September SPI 200 futures contract ended the night session nine points or 0.2% stronger at 4370 as oil and metals benefitted from a plunge in the US dollar after the minutes from the last Fed meeting were released.
US stocks followed European stocks lower early in the session but recouped most of their losses by the closing bell after the Fed minutes revealed increased pressure for QE3. The S&P 500 squeezed out a gain of 0.02% and the Nasdaq added 0.21%. The Dow cut an 83-point decline to a loss of 31 points or 0.23%.
The critical quote in the Fed minutes read: "Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery." That was enough to push the US dollar index down 0.4% and fuel a spike in gold and other risk assets.
"Get ready for QE3," wrote market commentator Rex Nutting in MarketWatch. "Top officials of the Federal Reserve are leaning strongly toward a third round of bond buying by the Fed, known colloquially as QE3, according to the minutes of the August 1 meeting of the Federal Open Market Committee... the term 'many members' usually indicates a majority of the 12-member committee that runs US monetary policy."
Enthusiasm for quantitative easing was undented by housing news overnight, which continued the recent trend towards improvement in economic data. Sales of existing homes increased by 2.3% last month, broadly in line with expectations.
Earlier, European markets followed Asia lower as traders took profits ahead of a series of meetings this week over Greece's debt problems. Germany's DAX dropped 1.01%, France's CAC 1.47% and Britain's FTSE 1.42%.
Gold was one of the night's winners, pushing to a new four-month high as the prospect of inflationary easing in the US encouraged investors to seek alternative stores of wealth. Gold for December delivery was lately up $13.50 or 0.8% at US$1,656.40 an ounce. September silver rose 36 cents or 1.2% to US$29.79 an ounce.
Copper reversed modest European losses in US trade, reaching a one-month high as most industrial metals rallied. In London, copper eased 0.1%, aluminium put on 0.4%, lead 0.2%, nickel 1.6%, tin 2.9% and zinc 1.35%. US copper for September delivery was recently up two cents or 0.6% at US$3.47 a pound.
Oil found support in a slump in US inventories. Oil for October delivery was lately ahead 40 cents or 0.4% at US$97.24 a barrel. Energy Information Administration data showed a weekly drop of 5.4 million barrels in US crude inventories, more than twice what analysts had predicted.
TRADING THEMES TODAY
STEADY AS SHE GOES: Another night of minimal change on Wall Street, although there are signs that a big move could be coming soon. Lately Wall Street has been rallying on good economic data AND on hopes of QE3 - that's having your cake and eating it because the former should decrease the need for the latter. Something will have to give. Meantime, our miners should draw support today from overnight gains in commodities as traders sold US dollars in favour of risk assets. Oil and gold hit new multi-month highs and copper neared the top of its recent trading range. The on-going reaction to BHP's Olympic Dam postponement may determine the XJO's early direction until the 12.30pm EST release of Chinese manufacturing data (see below).
CHINESE MANUFACTURING: Lunchtime on the east coast today brings a first look at China's August manufacturing numbers. HSBC's "flash" or preliminary purchasing managers' index improved to 49.3 last month but remained below the 50-point level that marks contraction for a ninth month. The data is due at 12.30pm EST. This site is very quick to post market-moving news.
ECONOMIC NEWS: No significant domestic data scheduled today but China offers a leading index of economic indicators at noon EST and then HSBC's flash manufacturing report at 12.30pm. Europe has flash manufacturing and services reports due tonight, plus consumer confidence. Highlights in the US include weekly unemployment claims, flash manufacturing, new home sales, house price index and natural gas storage.
