Shares are set to open sharply higher after strong housing news and the promise of continued quantitative easing lit a fire under US equities.
The March SPI 200 futures contract surged 42 points or 0.8% to 5062 as European stocks bounced back from Tuesday's losses and Wall Street's benchmark indexes regained key levels.
The Dow closed 175 points or 1.26% ahead at 14,075 after earlier hitting its highest level in five years. The S&P 500 rallied 19 points or 1.27% to 1,516 and the Nasdaq added 1.03%.
The gains extended Tuesday's relief rally after Federal Reserve Chairman Ben Bernanke underlined his commitment to continuing the central bank's stimulus program. Bernanke's testimony before Congress appeared to clear any doubt over the future of the program despite recent signs of dissent within the Fed.
"Did the market forget who the chief cook and bottle washer is? If they did, Ben has set them straight and the market loves it," Elliot Spar, market strategist at Stifel, Nicolaus & Co told MarketWatch.
Cyclical stocks led the rally as analysts reassessed the likely economic impact of US$85 billion of government spending cuts due to commence tomorrow. The Dow Jones Transportation Index surged 2.91% as FedEx, a traditional economic bellwether, rallied 2.5%. The Morgan Stanley Cyclical Index of companies best exposed to economic growth delivered its biggest advance since the start of the year.
A large increase in the number of contracts signed to purchase existing homes supported the recent upward trend in housing data. Pending home sales rose by 4.5% last month to a level last seen in April 2010.
European markets rebounded after the Italian government's borrowing costs rose less than feared at an overnight auction despite the country's weekend election deadlock. The yield of 4.83% was the highest in four months but below the critical 5% level. Germany's DAX rallied 1.04%, France's CAC 1.91%, Britain's FTSE 0.89% and Italy's FTSE MIB 1.77%.
Gold's two-day rally came to an abrupt halt as traders favoured assets more exposed to the economic cycle. Gold for delivery in April was lately down $18.90 or 1.2% at US$1,596.60 an ounce, reversing nearly half of its gains over the last two days. May silver dropped 34 cents or 1.1% to US$28.99 an ounce.
Oil found support in a smaller-than-expected increase in crude supplies in the US. Last week's additional 1.1 million barrels reported by the US Energy Information Administration was less than half the number predicted by analysts. Crude oil for April delivery was recently 23 cents or 0.25% stronger at US$92.86 a barrel.
Tin had its best night in a month during a mixed session for base metals. US copper for March delivery was recently down a cent or 0.2% at US$3.58 a pound. In London, tin rallied 0.8% and lead 0.3%. Copper and nickel also advanced but aluminum and zinc retreated.
TRADING THEMES TODAY
SEQUESTRATION? THE MARKET YAWNS: So much for the economic armageddon due to commence tomorrow in the US. Apparently the market has dismissed the sequestration issue as a mere speed bump, compared to Ben Bernanke's stimulus juggernaut. All that mattered overnight is that Ben has promised to leave the spigots open for the immediate future. Uncork the champagne. Wall Street bought equities with its ears pinned back before just the merest hint of profit-taking in the final half-hour. Resource stocks and industrials led the way and should provide much of the impetus here today. Precious metals suffered a setback as traders chased something sexier, but it's too early to say the downtrend has resumed.
COMPANIES REPORTING: The last day of the month brings a tidal wave of profit reports, including big hitters such as WOW, PPT, BEN, HVN and SVW and day-trade thread favourites, past and present, such as RXL, QFX, SLR, OBL, OBJ, MOU, ESI, GCN, ADO, BLT, CDY and COK. More listings here.
ECONOMIC NEWS: Quarterly private capital expenditure and monthly private sector credit figures are due at 11.30am EST. Monthly new home sales are also expected today, exact time uncertain. Europe releases inflation data tonight. Highlights in the US include preliminary GDP and GDP Price Index, weekly jobless claims, Chicago PMI and natural gas storage.
