Record closes in the US and positive Chinese economic data released over the weekend have Australian shares aiming for an 11th consecutive rise today.
The September SPI 200 futures contract rallied nine points or 0.2% to 5077 on Saturday morning, but the stock market may open stronger following further evidence that China's economy is stabilising. Investors also have their first chance to respond to news of a Federal election on September 7.
US stocks closed at record highs despite early weakness after the monthly government jobs report came in below expectations. The S&P 500 rallied three points or 0.18% after being down twice as much in morning trade. The Dow turned a 69-point decline into a closing gain of 30 points or 0.19% as it also finished at an all-time high. The Nasdaq put on 0.39%.
Heightened expectations following strong private payrolls and unemployment claims figures last week were dashed when the Labor Department announced that the economy created just 162,000 jobs last month, the weakest reading in four months. Economists had predicted growth of at least 180,000 jobs, with some anticipating increases of up to 225,000. The unemployment rate fell to a four-year low of 7.4% from 7.6%.
"The jobs report was very ho-hum," the chief global strategist at BTIG LLC in the US told MarketWatch. "It didn't really change the narrative. The only reason people are disappointed is because expectations were raised so much."
Other reports were more positive. Consumer spending met expectations and factory orders increased. Also helping lift the mood was a pro-stimulus speech by Federal Reserve Bank of St Louis President James Bullard, who said the Fed should maintain its current level of bond buying until the jobs market and economy are stronger.
Rio Tinto rallied 0.87% as raw materials stocks outperformed in the US. BHP dipped 0.2%. Iron ore rallied for the first time in five sessions. Spot ore for import to China increased by 40 cents to US$130.10 per dry metric tonne.
Fears of an accelerating slowdown in China eased over the weekend following news of an increase in services activity. The official non-manufacturing Purchasing Managers' Index improved to 54.1 last month from 53.9 in June, the index's first rise since March. Business expectations were at their highest level since December.
"The services sector PMI has been doing much better than manufacturing for some time and the corporate expectations index was at its highest this year, which shows confidence is returning," the chief China economist for Reorient in Hong Kong told Bloomberg. "The PMI is supposed to be a leading indicator so we are witnessing a stabilisation and a sign the economy isn't slowing down at a faster rate."
Most industrial metals inched higher in response to an unexpected expansion in Chinese manufacturing announced earlier in the week. In London, copper added 0.1%, lead 0.7%, nickel 0.1%, tin 1% and zinc 0.6%. Aluminium slipped less than 0.2%. US copper for September delivery put on less than a cent or 0.1% at US$3.17 a pound.
Oil slipped nearly 1% as energy traders registered disappointment with the US jobs report. West Texas Intermediate crude for September delivery retreated $1.01 or 0.9% to US$106.88 a barrel but still finished 2% ahead for the week.
Gold benefitted as traders speculated that the jobs disappointment underlined the case for continued central bank stimulus, pressuring the US dollar and encouraging investors to seek alternative stores of wealth. Gold for December delivery ended the week at US$1,312.90 an ounce, up $1.70 or 0.1% after earlier falling as much as $28.80.
TRADING THEMES THIS WEEK
FEDERAL ELECTION: Prime Minister Keven Rudd announced over the weekend that the nation will go to the polls on September 7. With current polling tighter than many anticipated, that means several weeks of uncertainty until a clear winner emerges. Generally speaking, markets hate uncertainty, so a rise in volatility is possible following an armchair ride for investors over the last two weeks.
NSW BANK HOLIDAY: Today is likely to see below-average trading volume with many institutions in NSW closed for a State bank holiday. The ASX is open but there is no settlement today, except for derivatives.
CHINA STABILISES: There was further evidence over the weekend that China's economy continues to defy the doomsayers. July delivered upside surprises in manufacturing and services that suggest the worst of the latest slowdown may be behind us. There are further opportunities to gauge the pace of the economy this week with trade figures due on Thursday and inflation readings on Friday, plus industrial production, retail sales and fixed asset investments.
RATE DECISION: A busy week for domestic news includes retail sales today, trade figures tomorrow, jobs on Thursday and the Reserve Bank's quarterly monetary policy statement on Friday. However, the main event is likely to be tomorrow afternoon's rates meeting, which is expected by most economists to deliver a cut of 25 basis points to the cash rate.
CORPORATE REPORTING SEASON: The domestic reporting season cranks up this week with earnings due from the likes of DOW (tomorrow), NSW (Wed), RIO, TLS, BWP (Thu) and TAH (Fri). Source: BRR Media.
ECONOMIC NEWS: A full domestic calendar this week includes: monthly inflation gauge (10.30am EST) and monthly retail sales (11.30am, both today); services index, trade balance, house price index, cash rate and rate statement (tomorrow); construction index, home loans (Wed); employment change, unemployment rate (Thu); and Reserve Bank monetary policy statement (Fri). A light week for US data includes: services PMI (tonight); trade balance (tomorrow); and weekly unemployment claims (Thu).
