Market wrap: A bright start lies ahead for Australian stocks after US equities surged higher despite a tepid round of economic news from around the globe.
The September SPI futures contract ended the night session 60 points or 1.4% stronger at 4230 amid speculation that further evidence of weakness in the US economy reinforces the case for the Federal Reserve to launch another around of quantitative easing this weekend.
US stocks rallied after manufacturing reports from China and Europe beat expectations, and extended their gains as US data missed targets. The S&P 500 put on 3.43% despite a mid-session dip as a 5.9 magnitude earthquake rattled the US. The Dow rallied 322 points or 2.97% and the Nasdaq 4.29%.
The monthly German manufacturing report was unchanged from last month, adding to investor relief following yesterday's modest improvement in Chinese data. But the real spur for US stocks last night appeared to be hopes that the recent dire run of US economic reports will force the Fed's hand at this weekend's meeting of central bankers at Jackson Hole. Last night's reports included a collapse in regional business activity to the lowest level in two years and a fall in sales of new homes to a five-month low.
"There's plenty of evidence that the economy has slowed," a market strategist at Stifel Nicolaus in the US told Bloomberg. "The speculation would be that it's possible that the Fed will say something designed to calm markets and provide a bit of encouragement."
Financial shares led the rally as cyclical stocks outpaced defensive sectors. Gold miners were sold off as the precious metal's record run stalled. Gold for December delivery was recently down $60.10 or 3.2% at US$1,831.70 an ounce. September silver lost $1.38 or 3.2% at US$41.95 an ounce.
Oil shook off a mid-session wobble following news of the US earthquake to advance for a second day. Crude oil for October delivery was recently ahead $1.38 or 1.6% at US$85.80 a barrel.
Industrial metals mostly rallied as yesterday's manufacturing report soothed fears of a collapse in Chinese demand. In London, copper added 1.55%, aluminium 1.9%, lead 4.2%, tin 2.2% and zinc 1.1%. Nickel lost 0.4%. US copper was recently up 1.45%.
"The main positives are the most recent Chinese data," an analyst at Standard Chartered told Reuters. "Implied demand for aluminium, copper, nickel, iron ore have been pretty good... but things are certainly getting slower from a macro perspective in the West."
The major European markets advanced as steady German manufacturing data eased worries about a major slowdown. Britain's FTSE added 0.67%, Germany's DAX 1.07% and France's CAC 1.08%.
TRADING THEMES TODAY
HANGING ON THE FED: A strange night in the US, where equities apparently rallied because Chinese and German reports weren't as awful as expected and then continued because US reports were worse. Talk about having your cake and eating it, too. The logic is that the US economy is so weak that Helicopter Ben will have to fling some more cash at the market at this weekend's meeting at Jackson Hole. It's not a particularly edifying basis for a rally, but it could be enough to ensure this up-leg continues for another couple of days. After that, the market better hope Bernanke has something up his sleeve. Gold succumbed to some predictable profit-taking, but true believers will be watching this pullback for a new entry level.
ECONOMIC NEWS: The monthly leading index is due at 10 am AEST. The quarterly construction work report is due at 11.30 am. There's more European industrial data due tonight, followed in the US by durable goods order, core durable goods, crude oil inventories and the house price index.
