A double shot of upbeat economic news inspired a relief rally in the US overnight and has Australian shares aiming higher for a second session today.
The September SPI 200 futures contract ended the night session 28 points or 0.7% stronger at 4040 as housing and durable goods orders topped expectations in the US, breaking a recent run of economic disappointments.
Energy stocks led a 0.9% rally in the S&P 500 as traders rotated back into cyclical sectors. The Dow put on 92 points or 0.74% and the Nasdaq added 0.75%.
"The economic data was encouraging," the chief investment officer of Greenwood Capital in the US told Bloomberg. "It's important to see that because most recently we've had weaker data here and in China while Europe came back to the forefront... In addition, it's the end of the quarter and you tend to see some buying around that time."
Orders for durable goods rebounded in May after two months of declines, soothing concerns about a slowdown in manufacturing. The seasonally-adjusted 1.1% increase in orders surprised economists who had been tipping a flat result for the month. Another report showed contract signings to buy homes jumped 5.9% last month to their highest level in two years - the third report this week to signal improvement in the bottoming housing market.
An index of companies most exposed to the US economy rallied 1.5% as traders revised their views about the economic outlook. Energy, the only one of the S&P 500's 10 sector groups in the red for 2012, was the index's best performer overnight.
Wall Street's rally gave European markets a late boost as US news for once overshadowed strains in Europe. Germany's DAX advanced 1.5%, France's CAC 1.67% and Britain's FTSE 1.41%. Italy's FTSE MIB surged 2.58% despite a sharp rise in borrowing costs at a government auction of short-term bonds overnight. The Italian government is due to auction longer-term treasuries tonight.
Oil maintained its close nexus with US equities, supported by improving economic data and a decline in US inventories. West Texas crude for August delivery was recently up $1.21 or 1.5% at US$80.57 a barrel.
Copper managed a third night of gains despite another mixed session for other industrial metals. In London, copper advanced 0.6%, aluminium 1.4% and tin 0.7%. Zinc eased 1.15%, lead 0.5% and nickel 0.15%. US copper for July delivery was recently up three cents or 1% at US$3.35 a pound.
Gold swung in a $22 trading range before settling little changed ahead of tonight's two-day EU summit. Gold for August delivery was lately off 30 cents or less than 0.1% at US$1,574.60 an ounce.
TRADING THEMES TODAY
REBOUND GATHERS PACE: There was a lot to like in last night's action, with the US rallying for a second night and an index of European shares breaking a four-session losing run. Traders are desperately hoping that the recent downturn in US economic data is just a soft patch, rather than a genuine roll-over, and will embrace anything that supports the more optimistic of these scenarios. Dr Copper, the "metal with the degree in economics", improved for a third night. On a less optimistic note, Italy's borrowing costs continued to rise and face an important test at a 10-year bond auction tonight. Beaten-up energy stocks led the rally in the US, which should provide a platform for local oilers/gas producers today.
ECONOMIC NEWS: Monthly new home sales are expected today, exact timing uncertain. All eyes will be on Europe tonight, where the EU starts a two-day summit and Italy holds an auction of 10-year government bonds. Highlights in the US include weekly jobless claims, final GDP figures, final GDP price index and natural gas storage.
