A European Central Bank pledge to defend the euro sparked strong gains in Europe and the US overnight and has Australian shares aiming higher.
The September SPI 200 futures contract rallied 37 points or 0.9% to 4140 as a "risk-on" session saw gains in oil and metals as the euro surged against the US dollar.
The Dow jumped 212 points or 1.67%, turning positive for the week as investors anticipated central bank intervention in Europe's bond markets following remarks by ECB President Mario Draghi. The S&P 500 recorded its first rally in five sessions, rising 1.65%, and the Nasdaq put on 1.37%.
"It is a big deal," the chief investment strategist at Charles Schwab in the US told Bloomberg. "The markets have been looking for a more definitive acknowledgement by key people like Draghi that they are willing to do what they need to do. We feel that if they want to save the euro, it would involve true QE."
Draghi told an investment conference in London, "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." Spain's bond yields plunged amid speculation that the central bank will resume buying Spanish and Italian debt. Spain's 10-year yield was recently down nearly half a percentage point at 6.9%, back below the 7% danger level. Read more here.
European markets snapped a run of four losses as investors swarmed beaten-up banking stocks. Spain's benchmark index recorded its biggest rally in more than two years. The IBEX 35 rocketed 6.06%, Italy's FTSE MIB 5.62%, Germany's DAX 2.75%, France's CAC 4.07% and Britain's FTSE 1.36%.
The night's US economic news was also broadly positive, with improving jobs and manufacturing data offsetting further evidence that a nascent rebound in housing has stalled. Durable goods orders increased for a second month, rising 1.6% in June, but pending home resales were 1.4% weaker. Seasonally-volatile weekly jobless claims dropped 35,000 to 353,000 last week.
Gold rallied for a second night to a three-week high, benefitting from a sagging US dollar and the inflationary implications of ECB intervention in bond markets. Gold for August delivery was lately up $6.70 or 0.4% at US$1,614.80 an ounce.
Oil improved for a third night as US economic data supplemented strength in equities and weakness in the greenback. West Texas crude for September delivery was recently ahead 56 cents or 0.6% at US$89.53 a barrel.
Copper advanced for a third night as most industrial metals improved. In London, copper added 0.3%, aluminium 0.4%, lead 1.6%, tin 2.3% and zinc 0.8%. Nickel eased 0.25%. US copper for September delivery was recently up two cents or 0.5% at US$3.39 a pound.
TRADING THEMES TODAY
SUPER MARIO LEADS THE WAY: The rally in the XJO that has been threatening over the last few sessions should kick off for real today after the ECB President finally told the market what it wanted to hear. Of course, actions matter more than words, but that's a problem for another day. For now we should see a decent rally that leaves the medium-term market up-trend intact. There is one caveat: US futures will need to stay reasonably strong in the face of some weak earnings reports released after the close of regular trade on Wall Street this morning - shares in Facebook were lately down 8.5% in after-market trade and Starbucks off 8.9%. Amazon was up 1.4%, reversing an initial fall. The gains in the US were broad, with all 10 industry groups in the S&P 500 rising. Biotechs, oilers and gold/silver miners were among the stand-outs.
ECONOMIC NEWS: No significant domestic news scheduled today. Highlights tonight in the US include advance quarterly GDP and the advance GDP Price Index, revised consumer sentiment and revised inflation expectations.
