The share market is shooting for a third day of gains after US stocks hit a five-year high on merger activity and signs of rising optimism in Europe.
The March SPI 200 futures contract rallied 16 points or 0.3% to 5076 despite overnight weakness in key metals.
The S&P 500 continued to push into levels last seen in 2008 as reports of a pending deal between retailers Office Depot and OfficeMax underlined a revival in corporate deal-making after years of muted activity. The benchmark index advanced 11 points or 0.74% to 1,531. The Dow added 54 points or 0.39% and the Nasdaq put on 0.69%.
"Recent mergers and acquisitions are further evidence of just how high the mountain of cash has grown for corporate America," the director of investments at Hinsdale Associates in the US told MarketWatch. "These companies are starting to be forced to possibly pursue deals, raise dividends or buy back stock, all of which are key drivers that could move stocks higher."
Shares of office supply companies Office Depot and OfficeMax surged up to 21% after the Wall Street Journal reported that a merger announcement could come as early as this week. The news fuelled gains in other companies viewed as potential take-over targets.
Also helping sentiment was a strong session in Europe after a surge in investor confidence in Germany. The closely-followed ZEW economic expectation index jumped 16.7 points to 48.2 this month, smashing expectations for a reading around 35. That reading overshadowed a mild decline in the "current conditions" index to 5.2 from 7.1. Germany's DAX share index charged 1.62%, France's CAC 1.88% and Britain's FTSE 0.96%.
Energy and consumer staples were the pick of the S&P 500 industry groups after West Texas crude oil for March delivery rallied $1.10 or 1.1% from this time yesterday to US$96.65 a barrel.
Materials was the worst of the S&P's 10 industry groups after another weak night on the London Metal Exchange. Analysts attributed declines in industrial metal prices to disappointment over the absence of Chinese buyers following the week-long Lunar New Year holiday.
"We need to see more substance in terms of underlying demand if the run up in prices is to be sustained. All eyes were on the return of the Chinese. It's still early to say but yes, it's been a no-show so far," Macquarie analyst Duncan Hobbs told Reuters.
US copper for March delivery was recently off three cents or about 0.9% at US$3.65 a pound. In London, copper dropped 0.7%, aluminium 0.7%, lead 0.7%, nickel 2.65%, tin 1.9% and zinc 0.7%.
Gold gave up yesterday's tentative Asian gains, settling lower for a fourth straight night. Gold for April delivery was lately down $5.50 or 0.3% at US$1,604.40 an ounce. Silver for March delivery skidded 45 cents or 1.5% to US$29.40 an ounce.
"Investors continue to buy racier assets such [as] equities rather than gold and silver," a technical analyst at GFT told MarketWatch.
TRADING THEMES TODAY
BIG WEDNESDAY: The domestic earnings season has a monster day ahead with earnings from the likes of BHP, Fortescue, Suncorp, Woodside and Aristocrat (eee below for more detail). The market has powered higher through this earnings season and that tells us all we really need to know about current sentiment and valuations. Wall Street extended its rally overnight, oil rebounded and the price of spot iron ore crept up 0.5% yesterday to US158 per dry metric tonne, its highest level since January 10. Other positives: the Russell 2000 index of US small caps rallied 0.87% and the Dow Jones Transportation Average surged 1.25%. Negatives worth noting: a fourth losing session for gold; nasty drop in silver through support; copper at a three-week low.
COMPANIES REPORTING: The full list of companies due to deliver earnings today is too long to quote in full - check here for more details. Among the big names today: ALL, APA, AZJ, BHP, FMG, GWA, KCN, RFG, RIC, SEK, SKE, SMX, SWM, TOL, WPL. (Sources: Fairfax, BRR)
ECONOMIC NEWS: Rival leading indexes of economic indicators are due today at 10am EST and 10.30am. The quarterly wage price index is due at 11.30am. Japan releases trade balance figures at 10.50am. Highlights tonight in the US include: building permits, producer price index/core PPI, housing starts, mortgage delinquencies and the minutes from the last Federal Reserve meeting.
