A late recovery on Wall Street has Australian shares aiming higher for a fifth day after US take-over activity tempered further evidence of an accelerating global economic slowdown.
The September SPI 200 futures contract ended the night session 15 points or 0.4% higher at 4112 as two out of the three major US equity indexes turned positive in the final half-hour of trade.
Friday's mood of optimism was undermined by the first contraction in manufacturing activity in the US in three years, compounding weak factory reports from China and Europe over the last 24 hours. The S&P 500 spent most of the night underwater before a late burst of buying helped it advance 0.25%. The blue chips of the Dow cut a 100+ point loss to just nine points or 0.07% and the Nasdaq was the pick of the indexes with a gain of 0.55%.
"We had a euphoric rally on Friday and a number of markets are settling back," a principal with Logic Advisors in the US told MarketWatch. "Data were not good across the board."
Manufacturing activity contracted last month for the first time since mid-2009. The ISM index dropped to 49.7% from 53.5% in May, below the critical-level 50-point level that separates expansion from conraction. Economists had predicted a much milder decline to 52.3%. A plunge in new orders was the worst since the 9/11 attack on the World Trade Center in 2001.
The contraction is "the surest sign yet that the US is catching the slowdown already under way in Europe and China," a senior economist at Capital Economics in the US told MarketWatch. "But the index does not suggest that another recession is looming."
Commentators said the market began to turn higher as the disappointing data raised hopes for further monetary easing from the Federal Reserve and as merger speculation and activity encouraged selective buying. Bristol-Myers Squibb announced a take-over of biotech Amylin Pharmaceuticals and shares in Best Buy jumped after the Wall Street Journal said its founder was exploring buy-out options.
European markets added to Friday's gains despite grim economic news. Manufacturing activity in the euro-zone stalled near May's three-year low and unemployment reached a record 11.1% in May. Germany's DAX rallied 1.24%, France's CAC 1.36% and Britain's FTSE 1.25% as investors bet that the weak economic data added to the case for a European Central Bank rate cut on Thursday.
Oil, gold and copper all lost ground before trimming their losses with US equities. West Texas crude for August delivery dipped as low as US$82.06 before recently trading at US$83.66, down $1.30 or 1.5%.
Copper was hurt by the drip-feed of downbeat global economic data, tempering optimism after last week's sharp rally. In London, copper eased 0.85%, aluminium 0.2% and zinc 0.5%. Lead added 1%, nickel 0.15% and tin 0.7%. US copper for July delivery was recently down three cents or 0.8% at US$3.47 a pound.
"Although last week's EU Summit provided a brief glimmer of hope, triggering a sharp bout of end-quarter short covering, today's PMI data has signaled a return to reality and reinforced evidence of a faltering global economic outlook," a VTB Capital base metal analyst told Reuters.
Gold for August delivery pushed well above its session-low of US$1,587.40 an ounce, recently trading $7.20 or 0.45% weaker at US$1,597.
TRADING THEMES TODAY
TESTING THE RALLY: The strong run on the ASX over the last week faces headwinds today as the index hazards a fifth day of gains despite horizontal resistance and a wobbly night on Wall Street. Most US stocks finished ahead but the night's economic news was a bucket of cold water after Friday's party atmosphere. Buying optimism is unlikely to withstand much more economic data of that calibre. Biotechs, airlines and transport stocks were among the pick of the US sectors. Small caps out-performed, pushing the Russell 2000 up 1.18% - a good sign for risk appetite. The Reserve Bank has a rate announcement this afternoon, but it would be a big surprise if there was any change this month.
CHINESE SERVICES: Any early gains on the ASX may face a quick test with the 11am EST release of China's non-manufacturing or services purchasing manager's index. This index has less power to move Australian equities than its manufacturing equivalent, but it will likely attract more attention than usual with investors currently attuned to signs of slowing global activity. The last reading on the index, which is prone to sharp seasonal fluctuations, was 55.2.
ECONOMIC NEWS: China's non-manufacturing PMI is due at 11am EST. Australian building approvals are scheduled for 11.30am. The Reserve Bank releases a cash rate announcement at 2.30pm. Factory orders and car sales are the highlights of a quieter night in the US.
