Shares are likely to open modestly higher as a surge in the price of iron ore and fresh stimulus measures in China shield mining stocks from a lacklustre night on Wall Street.
The September SPI 200 futures contract ended the night session nine points or 0.2% ahead at 5069 despite a fifth loss in six sessions for US stocks as slowing growth in Japan weighed on risk appetite.
The S&P 500 eased two points or 0.14% on low volume as traders waited for domestic economic reports later this week to provide direction. A narrow, range-bound night saw the Dow give up six points or 0.04% and the Nasdaq advance 0.27% thanks to a bounce in Apple amid rumours about the next iPhone.
The market extended last week's slide at the opening bell after Japan's second-quarter GDP report disappointed yesterday. Economic growth slowed to 2.6% from a revised 3.8% over the first three months of the year, well below expectations for a reading around 3.6%.
"We have growth frustratingly low offset by discount rates that are unnaturally low," the director of equity research at Bryn Mawr Trust in the US told Bloomberg. "As long as that's the case, the market will stay locked at least into September and you'll see days like this with low volume and really not a lot of conviction."
Energy and utilities were the biggest drags in the US, while IT and telecom stocks led the gains. Cyclical stocks and small caps outperformed the general market. The Morgan Stanley Cyclical Index gained 0.4% for a third straight rise. The Russell 2000 put on 0.5%.
Chinese shares yesterday hit a two-month high and the price of iron ore jumped 4% following reports that the government is secretly providing financial support to key cities and provinces. The South China Morning Post said that although the government has repeatedly ruled out a national stimulus program, state lenders were quietly providing funds to maintain growth in select areas. Read more here.
The Shanghai Composite rallied 2.38%. Spot iron ore for import to China surged $5.60 to US$138.70 per dry metric tonne, its highest level in more than three months. BHP and Rio Tinto hovered near multi-month highs in US action overnight. BHP eased 0.09% and Rio slipped 0.14%.
Industrial metals continued to be well supported following last week's unexpectedly strong Chinese factory data. US copper for September delivery was recently up less than a cent or 0.1% at US$3.31 a pound. In London, aluminium put on 0.7%, lead 0.7%, nickel 0.3%, tin 0.1% and zinc 0.1%. Copper gave back 0.3% following a 3.8% rally last week, its best weekly return since last September.
A strong night for precious metals saw silver crack US$21 per ounce for the first time in almost two months and gold lock in a fourth straight advance. September silver was lately up 98 cents or 4.8% at US$21.39 an ounce. Gold for December delivery was ahead by $24.20 or 1.8% at US$1,336.40 an ounce.
Oil overcame early weakness as the resumption of a strike at Libyan export terminals threatened to disrupt supplies out of north Africa. West Texas Intermediate crude for September delivery was recently up 22 cents or 0.2% at US$106.16 a barrel.
A mixed night for European markets saw Germany's DAX gain 0.25%, while France's CAC drifted 0.11% and Britain's FTSE lost 0.14%.
TRADING THEMES TODAY
RIDING ON CHINA'S BACK: Australian shares are viewed in many parts of the trading world as a proxy for Chinese growth, which is one reason why our market powered higher yesterday in tandem with Shanghai. If the Chinese economy is genuinely stabilising, as recent data suggests, a major headwind for our market will turn into a very useful tailwind. Today's outlook is cautiously positive, provided Shanghai continues its advance and there are no nasty surprises from business confidence figures at 11.30am EST or today's earnings reports. The Philadelphia index of precious metals miners in the US jumped another 5.19% overnight, so there should be strength in that sector here.
ECONOMIC NEWS: Monthly business confidence figures are due at 11.30am EST. A big night of European data includes the closely-followed German ZEW Economic Sentiment index, industrial production data and inflation figures. US traders finally have some meaty data to get their teeth into tonight with retail sales/core retail sales. Also tonight: Small Business Index, import prices and business inventories.
