Further gains for the big Australian miners in overseas action point to a flat start to local trade despite a mixed night for US and European shares.
The March SPI 200 futures contract ended the night session two points or less than 0.1% ahead at 4171 as signs of deterioration in the German economy weighed on US stocks.
The Dow recovered early losses to end the session just 13 points or 0.1% weaker after Germany announced that its economy went backwards in the final quarter of last year. The S&P 500 squeezed out a gain of 0.03% to finish at a new six-month closing high and the Nasdaq outperformed with a gain of 0.31%.
Germany's Federal Statistics Office said the economy likely contracted by 0.25% last quarter, raising fears that Europe's austerity measures are smothering growth and tipping the euro-zone into recession. The news helped push the major European markets lower, with energy stocks hits by a pullback in oil. Britain's FTSE fell 0.45%, Germany's DAX 0.19% and France's CAC 0.17%.
"Nothing has really been done to stimulate growth in Europe," an asset manager at Huntington Asset Advisors in the US told Bloomberg. "Without growth, you can't fix this issue. If Germany slows down, then you start to have a real problem on how to make that happen. There's more risk on the earnings side as to how companies are going to come through all this."
As has been the trend this year, US stocks slumped in early trade then clawed back losses as the session advanced. Financial stocks led the recovery and Australia's big miners added to this week's gains. Rio Tinto put on 1.1%, BHP 0.6% and Alumina 3.1%.
A mixed night for commodity prices saw oil retreat but most metals strengthen in the face of a rising US dollar. West Texas crude sold off after another unexpectedly large increase in US inventories raised demand concerns. The Department of Energy's update showed a jump in US supplies of five million barrels last week. Crude for February delivery was recently off $1.13 or 1.1% at US$101.11 a barrel.
Most industrial metals continued to benefit from this week's bullish Chinese import data. In London, copper rallied 0.8%, aluminium 0.4%, lead 0.55%, tin 1% and zinc 0.1%. Nickel eased 0.3%. US copper was recently up 1.1%.
Gold improved for a second day following news of record Chinese imports from Hong Kong. China's November purchases marked a fifth straight increase and were 20% up on the previous month. Gold for February delivery was lately ahead $10.90 or 0.7% at US$1,642.40 an ounce.
TRADING THEMES TODAY
STEADY AS SHE GOES: Another slump in the US followed by another recovery by the closing bell - this really does look like a market that wants to go higher. "Buy the dips" is the message from Wall Street at present. The XJO's performance today will depend to some extent on China's 12.30pm inflation report (see below), but there are reasonable leads from overseas, with US financials, small caps, biotechs and miners all out-performing the major indexes, and gold and most industrial metals advancing. Trading conditions so far this year have been much more benign than last year. All we need now is some volume.
CHINESE INFLATION: The Shanghai Composite has surged since the start of the year on signs that recent economic news will force the government to relax last year's monetary tightening. With the Australian stock market traded by many overseas as a proxy for Chinese growth, anything that's good for China is good for Australian stocks, so today's monthly inflation report will be closely watched. Traders are looking for confirmation that inflation is easing, giving China's central bank room to cut interest rates and/or loosen bank lending criteria. The November consumer inflation reading was 4.2% - analysts are forecasting a fall in today's December figure to 4%. An announcement is due at 12.30 pm AEST.
ECONOMIC NEWS: Today's main event during trading hours is the monthly China inflation report (see above). The European Central Bank and Bank of England make rate announcements tonight and Spain holds a bond auction. Highlights in the US include retail sales, core retail sales, weekly unemployment claims, business inventories, natural gas storage and the Federal budget balance.
