A flat start to trade appears likely as continuing weakness in market heavyweight BHP offsets a third night of shallow gains for US stocks.
The June SPI 200 futures contract retreated three points or less than 0.1% to 5373 on heavy volume ahead of the expiry of the contract tomorrow.
US stocks overcame broadly negative housing and inflation data to extend two days of tepid gains ahead of tonight's Federal Reserve policy statement and quarterly forecasts. The S&P 500 rallied four points or 0.22%, led by strength in the financial sector. The Dow added 27 points or 0.16% and the Nasdaq 16 points or 0.37%.
“Overall, you’re still in a market environment where the path of least resistance is up,” John Canally, economic strategist at LPL Financial in the US, told Bloomberg. "Another bump [tonight] could be the FOMC [Federal Open Market Committee], although the outcome is largely already priced in.”
US shares retreated in early trade after reports showed the cost of living rose more than forecast and housing starts were weaker than expected. The consumer price index increased by a seasonally-adjusted 0.4% in May, boosting the annual rate to its highest level since late 2012. Sharp increases during April and May have pushed inflation near the Federal Reserve's target, raising the possibility that the central bank may raise rates sooner than the market anticipates.
Housing starts slumped 6.5% in May and permits for new construction fell by 6.4% to the lowest number in four months, dashing hopes that the housing market would pick up after a winter slowdown.
The Morgan Stanley Cyclical Index rallied 0.37% and the Russell 2000 index of small caps advanced 0.84%. The Russell 200 has bounced 7.3% since a rout in small caps and biotechs climaxed last month.
A small improvement in iron ore failed to prevent a 1% fall in BHP in US trade. Spot iron ore for import to China yesterday edged up 30 cents from Monday's 21-month low to US$89.30 a dry tonne. Rio Tinto rallied 1.15% in the US.
Gold suffered its first setback in seven sessions but settled well above its session low as US inflation data encouraged hedging. Gold for August delivery was lately down $3.40 or 0.3% at US$1,271.90 an ounce after settling at US$1,272. The contract dipped below US$1,260 before recovering.
Oil gave up some of its recent gains as speculation continued on the effects of a growing sectarian conflict in the north of Iraq on oil production in the south. West Texas Intermediate crude oil for July delivery was recently off 28 cents or 0.3% at US$106.62 a barrel after settling at US$106.36.
“At this stage, the situation in Iraq remains fluid, but we feel that the risks to disruptions to southern exports looks limited,” Credit Suisse analyst Thomas Adolff told MarketWatch. “The deteriorating investment climate in Iraq, however, is likely to have an impact on the outlook for supply growth in the south.”
Base metals continued to find support in China's reaffirmation of growth targets ahead of today's release of May housing price data. US copper for July delivery was recently up 0.4% or more than a cent at US$3.06 a pound. In London, copper rose 0.22%, lead 0.62%, nickel 2.52%, tin 0.45% and zinc 0.97%. Aluminium slipped 0.05%.
European stocks advanced for the first time in three sessions as the improving mood on Wall Street offset a sixth straight decline in German investor confidence. The Stoxx Europe 600 index rallied 0.26% as Germany's DAX put on 0.36%, France's CAC 0.58% and Britain's FTSE 0.18%.
TRADING THEMES TODAY
STEADY EDDIE: There has been interest in buying the lows over the last three sessions, but while the iron ore price remains in the doldrums there is not much enthusiasm for chasing Wall Street higher. The June SPI contract expires tomorrow, which may partly explain the limited movements. Financials were strong in the US overnight, along with small caps and insurers. Chinese house price data for May is due today and has the potential to change the market mood.
ECONOMIC NEWS: Rival leading indexes of leading economic indicators are due this morning from the Conference Board at 10am EST and the Melbourne Institute at 10.30am. China releases house price data today, exact time uncertain. Tonight in the US is all about the Fed, which ends a two-day policy meeting with a policy statement, press conference, the Federal Funds Rate and the release of quarterly economic projections. Also due: crude oil inventories and current account.
