A bright session on Wall Street and a five-month peak in spot iron ore have Australian shares aiming at a new 17-month high this morning.
The December SPI 200 futures contract ended the night session 24 points or 0.6% ahead at 4597 after solid gains in the big Australian miners in overseas trade and strength in US financials.
The S&P 500 broke a two-session losing run, rallying 1.16% and closing at its intraday high as investors grew more optimistic that a budget deal is taking shape after Republican House Speaker John Boehner reportedly offered to accept tax increases on the nation's wealthiest. The Dow added 100 points or 0.76% and the Nasdaq put on 1.33%.
"Hope over the fiscal cliff is causing markets to rally, with the most notable price action under way in the financials sector," a co-portfolio manager of the ATAC Inflation Rotation Fund in the US told MarketWatch. "Big out-performance in big banks is precisely how healthy markets behave, and the move higher could easily have legs despite the growing chorus of New Year bears who are arguing that a market drop is imminent."
The rally came as President Obama and Boehner met at the White House for the second time in three days. Earlier, President Obama dismissed a reported offer from the Republicans to raise taxes on people earning more than US$1 million a year in exchange for spending curbs on Medicare and social security. Democrats have previously indicated they want tax increases on individuals earning more than US$200,000 a year and families earning more than US$250,000.
Economic data continued to have little impact. Manufacturing in the greater New York region continued to deteriorate as the after-effects of Hurricane Sandy exacerbated already-weak conditions. The Empire State index fell for a fifth straight month to -8.1 this month from -5.2 in November.
Australia's big listed miners extended yesterday's Australian gains in US trade after spot iron ore prices touched a five-month high in Shanghai yesterday. Rio Tinto advanced 2.66% and BHP gained 1.23%. Spot iron ore rose roughly US$3 to US$129-$130 a tonne, according to Reuters.
Oil tracked US equities higher but remained well within its recent trading range. West Texas crude for January delivery was lately up 70 cents or 0.8% at US$87.43 a barrel.
Copper continued to ease from last week's two-month high, but other industrial metals traded mixed. US copper for March delivery was recently down one cent or 0.3% at US$3.67 a pound. In London, copper lost 0.1%, aluminium 0.95% and nickel 1%. Lead added 0.65%, tin 0.65% and zinc 0.1%.
Gold climbed off its lows to end the session little changed. Gold for February delivery was recently $1.90 or 0.1% higher at US$1,698.90 an ounce.
European markets finished off their lows in thin, choppy action as traders began to close the books for Christmas. Germany's DAX added 0.11%, France's CAC lost 0.14% and Britain's FTSE gave up 0.16%.
TRADING THEMES TODAY
PLAYING CATCH-UP: A sceptical XJO yesterday ignored hints that a strong night was coming in the US and therefore has some catching up to do today. The S&P 500 closed at what looks like a seven-week high, suggesting there could be more to come if the two political parties continue to narrow their differences on a budget deal. Spot iron ore notched another milestone yesterday, supported by improving Chinese economic activity, and should help fuel another up-leg in the big miners today. Small caps in the US bumped 1.2% overnight. The Small Ords here has out-performed the broader index for the last week but it hasn't felt like it. Speculative interest remains very subdued relative to gains in the broader market.
ECONOMIC NEWS: The Conference Board's leading index of economic indicators is due at 10am EST, but the day's main domestic event is the 11.30am release of the minutes from the last Reserve Bank meeting. A quiet night ahead in the US for scheduled news offers current account data and a housing market index.
