A fourth day of share gains is within sight after news of a possible short-term fix for the US debt ceiling gave Wall Street a late push on Friday.
The March SPI 200 futures contract advanced 17 points or 0.4% on Saturday morning to 4757 as the Dow reached a five-year high and the big Australian miners rallied in overseas trade.
The S&P 500 wallowed for much of the session before reports of a congressional vote on a three-month increase in the amount the government can borrow helped the index put on 0.34% for a weekly gain of around 1%. The Dow added 54 points or 0.4% and the Nasdaq just missed break-even at -0.03% after Intel was slapped down 6.31% for an earnings miss.
Fears of an imminent budget battle in Congress were soothed by news that Republican leaders in the House of Representatives will vote this week to raise the debt ceiling for three months to allow the government to pay its bills and avoid a default. Treasury Secretary Tim Geithner had previously warned that the federal government would run out of money by early March unless borrowing limits were increased. The extension will give Congressional leaders breathing space to work on spending cuts postponed in the "fiscal cliff" New Year compromise.
"It could be a big positive for the markets if we come up with a plan of spending cuts that isn't too awfully hard on the economy," an investment adviser and portfolio manager at Cozad Asset Management in the US told Reuters.
The market began the session underwater after an unexpectedly sharp slump in consumer sentiment last month as the budget debate raged in Washington. A preliminary reading on consumer sentiment dropped to 71.3 from 72.9 in November.
The market stabilised as well-received quarterly earnings reports from General Electric and Morgan Stanley helped steady the ship after Intel's downbeat outlook. China's rebounding GDP, unveiled during Australian trading hours on Friday, also helped sentiment. Rio Tinto rallied 1.88% in US trade and BHP put on 0.21%.
A strong session for the US dollar kept a lid on most dollar-denominated commodities, but copper was boosted by the improvement in Chinese growth last quarter. US copper for March delivery rallied a cent or 0.4% to US$3.68 a pound. In London, copper put on 0.2%, lead 0.7% and zinc 1.2%. Aluminium dipped 0.1%, nickel 0.3% and tin 0.1%.
Oil struggled to extend weekly gains of more than 1.5% as weak consumer sentiment in the US offset an increased oil demand forecast from the International Energy Agency. The IEA raised its demand expectations by 240,000 barrels a day to 90.8 million barrels per day on the back of Chinese growth. West Texas crude for February delivery eased 24 cents or 0.25% to US$95.25 a barrel.
Gold trimmed a weekly gain of around 1.5%. Gold for February delivery dropped $6.20 or 0.4% to US$1,684.60 an ounce on Friday.
A rally in Rio Tinto helped British shares buck the downward drift in European markets as Wall Street's soft open undermined any optimism over China. Britain's FTSE added 0.35%, Germany's DAX lost 0.43% and France's CAC gave up 0.06%.
TRADING THEMES THIS WEEK
WALL STREET CLOSED TONIGHT: Friday's cautiously positive lead from Wall Street will have to serve our market for the next two sessions with US exchanges closed tonight for the Martin Luther King Junior public holiday. That provides a degree of uncertainty in the first half of the trading week because US market holidays are sometimes an excuse for institutional traders to push our index sharply in one direction one day, then back to where you would expect it to be the next.
DEBT CEILING VOTE: Republican leaders of the House of Representatives said on Friday they will vote this week to increase the federal government debt ceiling by three months to allow for a full debate on spending cuts. That averts a near-term budget war with negative implications for the stock market but once again kicks the tough decisions further down the road. It's unclear exactly when the vote will take place this week.
US EARNINGS: The fourth-quarter earnings season in the US continues to thunder on this week with earnings due from market heavyweights Apple, Microsoft and Google. A light week for economic news should keep the spotlight on earnings. Tomorrow brings reports from IBM and Google, but the biggest influence this week is likely to be Apple's result on Wednesday. Comprising 10% of the Nasdaq and nearly 4% of the S&P 500, Apple is the single biggest market-mover on US exchanges.
CHINESE MANUFACTURING: Thursday brings a first look at whether the manufacturing up-turn in China has continued this month. HSBC's "flash" or preliminary manufacturing purchasing managers' index is expected to continue the turnaround that began three months ago. The index has been positive for the last two months, hitting 51.5 in December.
ECONOMIC NEWS: The highlights of an exceptionally light week for scheduled domestic news are consumer inflation and a leading index on Wednesday. The light diet during a holiday-shortened week in the US includes: existing home sales (tomorrow); weekly jobless claims, leading indicators (Thu) and new home sales (Fri).
