Shares are set to reverse yesterday's losses after solid corporate earnings and the biggest privatisation deal in years fuelled a rebound on Wall Street.
The March SPI 200 futures contract bounced 17 points or 0.4% to 4861 as US stocks recouped most of Monday's decline, their heaviest fall since November.
The S&P 500 rallied 1.02% with all 10 industry groups rising as a leveraged buy-out for PC maker Dell reminded investors that share valuations remain attractive relative to US bonds. The Dow added 99 points or 0.71% but couldn't hold above 14,000, closing at 13,979. The Nasdaq put on 1.3%.
"When you do get a pullback, that's an excellent time to put some money to work in the stock market," the chief investment strategist at Fulcrum Securities in the US told Bloomberg. "If insiders are buying their stock, that's a positive sign. Here's the ultimate insider of Dell, basically buying a controlling stake."
Dell CEO Michael Dell announced overnight that he and Silver Lake Management will take the company private in the largest leveraged buy-out since the GFC. Analysts said the deal was likely to be the first of many as investors look for ways to top the low yields currently paid on US bonds.
Also helping sentiment was another round of broadly positive earnings reports. The chief investment strategist at Janney Montgomery Scott in the US said the market was breathing a sigh of relief that the Q4 earnings season had been stronger than expected: "This quarter was one that had relatively low expectations coming into it, but the beats on the earnings and on the revenue side have been pretty good, particularly on the revenue side... earnings growth is just under 5%, and that's relieved those who thought maybe the earnings picture was deteriorating to the point where we would see surprisingly poor earnings."
The night's economic news was broadly positive. A measure of services activity moderated a fraction to 55.2 from 55.7 but remained above the 50-point level that indicates expansion. House prices increased 0.4% in December for a year-on-year gain of 8.3%.
Positive earnings and stabilising business activity helped steady nerves on European markets after Monday's brutal sell-off. The final version of composite purchasing managers' index for the euro-zone improved to 48.6 last month, a ten-month high. Germany's DAX advanced 0.35%, France's CAC 0.96%, Britain's FTSE 0.58%, Italy's FTSE MIB 1.05% and Spain's IBEX 35 2.2%.
Oil resumed its uptrend as economic data from Europe and the US pointed to improving demand. West Texas crude for March delivery was recently up 55 cents or 0.5% at US$96.72 a barrel.
Gold gave back some of yesterday's gains as traders favoured riskier assets. Gold for April delivery was lately down $2.60 or 0.2% at US$1,673.80 an ounce.
Industrial metals were little changed in London as Monday's broader market jitters capped risk appetite. Copper eased 0.3%, nickel less than 0.1%, tin 0.2% and zinc 0.4%. Aluminium inched up less than 0.1% and lead added 0.3%. US copper for March delivery was recently up three cents or 1% at US$3.77 a pound.
TRADING THEMES TODAY
REBOUND: So much for the pullback. The excuse for Monday's sell-off always sounded bogus, even if the falls were genuine. Twenty-four hours later and there's barely a mention in the overnight market reports of Spanish/Italian bond yields. That's so Monday. Last night's action was a reminder, if any were needed, that this remains a 'buy the dip' market. The Dell buy-out suggests there is value to be found on Wall Street, even as the indexes eye record levels. If the leveraged buy-out cycle cranks into gear there's no telling where this market could go. Sun is shining. Let's make hay.
ECONOMIC NEWS: Monthly retail sales are due at 11.30am EST. A quiet 24 hours ahead on world markets offers German factory orders and in the US, weekly crude oil inventories.
