The share market is primed to extend Friday's gains after US stocks and key commodities rallied as the odds on central-bank stimulus cuts dimmed.
The September SPI 200 futures contract advanced 22 points or 0.4% to 5129 as weak US housing data undermined the argument for the Federal Reserve to start to unwind its US$85 billion a month bond-buying program next month.
Resource stocks and telecoms led the way as the S&P 500 put on seven points or 0.42% for its first back-to-back gain in three weeks. A 7.29% surge in Microsoft helped the Dow gain 47 points or 0.32% and the Nasdaq 19 points or 0.53% after Steve Ballmer, CEO of the tech giant, announced he will stand down in 12 months.
US stocks initially slumped after an unexpectedly heavy decline in new home sales last month. Sales dropped 13.4% to a seasonally-adjusted annual rate of 394,000, the worst reading since October, and previous months were revised downwards. The report raised concerns that recent rises in mortgage rates, which are linked to US Treasury yields, are starting to smother the housing revival, one of the recent strengths of the US economy. The market quickly rebounded as traders interpreted the data as a reason for the Fed to leave its stimulus program unchanged at next month's policy meeting.
"To the extent they haven't made their minds up, this is a data point you have to chalk up to deferring tapering for now," Mark Luschini, chief investment strategist at Janney Montgomery Scott in the US, told MarketWatch.
Traders also kept a close eye on events at the annual Jackson Hole Economic Symposium, where three Fed officials offered differing opinions on whether the central bank should start to "taper" its stimulus program next month. One favoured starting to taper next month, while two more said the committee needed to see more economic data. Trading volumes on Friday were among the lowest of the year.
European markets were boosted by upbeat economic data. Reports showed the German and British economies both grew 0.7% last quarter and consumer confidence in the euro-zone was stronger than expected. Germany's DAX share index put on 0.23%, France's CAC 0.24% and Britain's FTSE 0.7%.
Gold surged at the prospect of continued central bank stimulus in the US, closing at its highest level in almost three months. Gold for December delivery rallied $25.50 or 1.9% to US$1,396.30 an ounce.
"Gold is trading off tapering expectations, and basically we're seeing the new home sales miss imply tapering will be delayed," the editor of the 7:00's Report told MarketWatch. "There are still a huge number of shorts in gold that need to cover, and this will make them nervous."
Oil cut its loss for the week to under 1%. West Texas Intermediate crude oil for October delivery added $1.29 or 1.2% at US$106.32 a barrel.
Copper shook off the US housing news as data showed stockpiles in China and the UK are declining as Chinese demand picks up. Inventories in warehouses monitored by the Shanghai Futures Exchange declined by 3.6% last week. US copper for September delivery rallied two cents or 0.7% to US$3.35 a pound. In London, copper gained 0.5%, aluminium 0.5%, lead less than 0.1%, nickel 0.7% and zinc 0.6%. Tin slipped 0.6%.
Rio Tinto edged up 0.53% in US trade but BHP fell 0.11% as the price of iron ore continued to trade sideways. Spot iron ore for import to China rallied 90 cents to US$138.60 per dry metric tonne on Friday.
TRADING THEMES THIS WEEK
EARNINGS SEASON: Domestic corporate earnings will continue to steer the Australian market this week. Among this week's highlights are Woolworths on Wednesday and Qantas, Westfields and DJs on Thursday. The calendar includes: APZ, BLY, CNU, CTX, DNA, MIO, NHF, SKI, VTG (Mon); AWE, BBG, BPT, CVW, FLT, NBL, PSA, MMS, WHC (tomorrow); ABP, AGK, CHC, MTS, MYT, PRT, ROC, SFR, SXY, TSE, WOW, WTF (Wednesday); DJS, DLS, MQA, PDN, PPT, QAN, RHC, SFW, WDC (Thursday); and CAF, EVN, GBD, HVN and VAH (Friday) (sources: Fairfax, BRR).
TAPER TALK: Uncertainty over the timing of the long-awaited Federal Reserve stimulus program "taper" will continue to dominate US action this week. But at least traders will have some meaty economic data to consider. Highlights include: durable goods orders (tonight); consumer confidence (tomorrow); pending home sales (Wed); revised GDP (Thu); and revised consumer sentiment (Fri). See below for more. Bear in mind that with the Fed tying the taper to economic strength, negative economic news may prove more supportive for the stock market in the short term than positive news.
ECONOMIC NEWS: A light week for scheduled domestic news includes: quarterly construction work (Wed); private capital expenditure, new home sales (Thu); and private sector credit (Fri). US highlights include: durable goods orders/core durable goods (tonight); consumer confidence, Richmond Manufacturing Index (tomorrow); pending home sales (Wed); revised GDP, weekly jobless claims (Thu); and personal income, consumer spending, Chicago PMI and UMich consumer sentiment (Fri).
