US stocks pushed to their highest level in more than a month overnight, boosting Australian futures as traders bet that this week's Federal Reserve meeting will generate fresh stimulus measures.
The June SPI 200 futures contract ended the night session 26 points or 0.7% stronger at 4154 as European stocks surged after a Spanish bond auction went better than expected. Oil and most industrial metals rallied.
The Dow hit a five-week high overnight as the US Federal Reserve began a two-day meeting under pressure to introduce fresh moves to support the flagging US economy. The blue-chip index rallied more than 150 points before paring its rise to 96 points or 0.75% after a German official quashed rumours that the G-20 discussed using European bailout funds to buy sovereign bonds. The S&P 500 put on 0.98% and the Nasdaq added 1.19%.
"People are anticipating some type of response from the Fed [tonight] and are buying or covering shorts in anticipation of that," the head of asset allocation at ING Investment Management in the US told Reuters.
Analysts said the most likely move by the Federal Reserve at the conclusion of the meeting tonight would be to extend its "Operation Twist" program, which is due to expire at the end of the month. The program involves selling short-term debt and buying longer-term bonds to generate liquidity.
The market was also supported by broadly positive US housing news. Building permits rose to their highest level in nearly four years and an upwards revision to April construction data partly made up for a modest decline in the number of new starts last month.
Modest success in a Spanish bond auction overnight helped fuel a surge in European stocks. Germany's DAX jumped 1.84%, France's CAC 1.69% and Britain's FTSE 1.73% after Spain sold more short-term bonds than expected but at much higher yields. The yield on Spain's 10-year bond fell back towards 7%.
A drop in the US dollar on stimulus expectations helped lift commodity prices. Oil reversed some of its losses over the last two sessions as traders favoured risk assets over havens. West Texas crude for July delivery was lately up 73 cents or 0.9% at US$84 a barrel.
Copper jumped to a three-week high as most base metals rallied. In London, copper put on 1.3%, lead 0.9%, nickel 2.6%, tin 0.1% and zinc 1%. Aluminium eased 0.2% to languish near a two-year low. US copper for July delivery was recently up three cents or 0.85% at US$3.43 a pound.
Gold pared its recent rally as traders favoured assets perceived as more closely tied to global growth. Gold for August delivery was recently down $8.10 or 0.5% at US$1,618.90 an ounce.
TRADING THEMES TODAY
BETTING ON THE FED: Fed chairman Ben Bernanke now has a gun to his head, with markets betting heavily that he has no choice but to extend Operation Twist at the very least at the conclusion to a two-day meeting tonight. Spain's situation looks increasingly desperate, but apparently that doesn't matter right now, provided Helicopter Ben finds more cash to throw at markets. Let's hope he doesn't disappoint. There's also a chance that the G-20 meeting will deliver a breakthrough, but expectations there are lower. Meantime, our market should enjoy a bright open at a level last seen in the middle of May. Cyclical sectors led the gains in the US and are likely to do likewise here.
ECONOMIC NEWS: The Conference Board releases its leading index of economic indicators at 10am EST, followed by a rival index from the Melbourne Institute at 10.30am. Quarterly housing starts are due at 11.30am. Tonight all eyes will be on the outcomes of the US Federal Reserve and G-20 meetings.