Shares are set to extend yesterday's advance at today's open after robust Chinese trade data fuelled strong gains among resources and mining stocks in the US.
The September SPI 200 futures contract rallied 19 points or 0.4% to 5020 as copper led a recovery in industrial metals, iron ore rallied for a fifth day, gold regained US$1,300 per ounce and BHP and Rio Tinto both put on more than 3%.
US stocks overcame a mid-morning slump to break a three-session losing run. The S&P 500 rallied six points or 0.36% with materials the pick of the index's 10 industry groups as traders upgraded their expectations for demand out of China. The Dow edged up 27 points or 0.18% and the Nasdaq added 0.41%.
Fears that a slowdown in China threatened economic recoveries in the US and Europe were soothed by yesterday's July trade report, which showed unexpected growth in both imports and exports. Exports reversed a 3.1% decline in June with a rise of 5.1% last month. Imports jumped 10.9%. Both figures were well ahead of analysts' expectations. Read more here. The news helped the 19-commodity Thomson Reuters CRB index rally 0.7%.
"As long as we continue to see those improved numbers coming out of China, it's going to drive up consumption of commodities," a senior commodities broker at RJ O'Brien in the US told Reuters.
BHP climbed 4.65% in US action to its highest level in 10 weeks. Rio Tinto put on 3.33% for a 14-week high. Iron ore and coal miner Cliffs Natural Resources flew up 8.91% as spot ore for import to China advanced $1.70 to US$133.10 per dry metric tonne, its fifth straight improvement.
Gold miner Newmont was another standout, jumping 8.69% as gold regained its 50-day moving average. Gold for December delivery was lately up $26.50 or 2.1% at US$1,311.80 an ounce. The Philadelphia Gold and Silver Index of US-listed miners rallied 8.42%.
Copper neared a two-month peak as short sellers scrambled to cover bets on further weakness. Aluminium, zinc and nickel commanded their best prices in two weeks, while lead and tin fared even better. US copper for September delivery was recently up nine cents or 2.8% at US$3.26 a pound. In London, copper added 2.6%, aluminium 2.4%, lead 1.6%, nickel 2.5%, tin 2.1% and zinc 2.5%.
"The data supports our positive view that the period of destocking in China is over and we forecast an improvement in metals demand and also a stabilisation of growth in China over the coming months," an analyst at Commerzbank told Reuters. "Sentiment was also very downbeat in the market and the data has triggered some short-covering."
US equity traders were untroubled by a modest increase in jobless claims last week, as recent gains pushed the four-week average to its lowest level in more than five and a half years. First-time claims edged up to 330,000 last week from 328,000 the previous week. The four-week average declined to 335,500.
European markets advanced after Credit Suisse upgraded its outlook for the region, citing an improvement in economic indicators. Analysts said they expected growth of 1% in the months ahead as the euro-zone puts the debt crunch behind it. Germany's DAX put on 0.7%, France's CAC 0.63% and Britain's FTSE 0.29%.
A falling US dollar and the Chinese trade report were not enough to arrest a five-day decline in the price of oil, which analysts warned was a likely indicator of further weakness. West Texas Intermediate crude for September delivery was recently down 53 cents or 0.5% at US$103.85 a barrel.
TRADING THEMES TODAY
RESOURCES OUTLOOK BRIGHTENS: No prizes for guessing where the strength is likely to be on the ASX today. The miners should lead the charge following big moves in US counterparts overnight. The ASX pre-empted some of the advance yesterday afternoon, but there should be room for more gains today so long as there are no nasty surprises from the Reserve Bank's quarterly Monetary Policy Statement or Chinese inflation data at 11.30am EST or Chinese industrial production, retail sales and fixed asset investment at 3.30pm. If the Chinese data can be believed, July really seems to have been a game-changing month for demand from our biggest trading partner, with long-term implications for resource prices and mining stocks. Dunno what's up with oil but it should have run with the rest of the commodities complex overnight if the current price level was fair dinkum.
ECONOMIC NEWS: A busy session ahead includes a quarterly Monetary Policy Statement from the RBA and China's consumer price index and producer price index, all at 11.30am EST. Japan releases consumer confidence figures and the Bank of Japan's monthly report at 3pm, followed by Chinese industrial production, fixed asset investment and retail sales at 3.30pm. A slow week in the US wraps up with wholesale inventories tonight.
