Australian stocks fronted a regional rally this morning, boosted by strong US futures and hopes for a rate cut this afternoon.
At lunchtime the ASX 200 was ahead 43 points or 1.1% at 4028 as a broad rally lifted all sectors bar utilities (-0.1%). An improvement in risk appetite was highlighted by cyclicals outperforming defensive sectors and small caps trumping blue chips. The biggest gains came in energy +2.8%, the Small Ords +1.8%, metals & mining +1.7% and materials +1.6%.
The rally came as last month's stock and commodity market rout raised expectations that central banks will move this week to counteract weakness in the global economy. Besides this afternoon's Reserve Bank meeting in Australia, the European Central Bank is tipped to cut its benchmark rate this week, China is expected to accelerate its stimulus program and the US Federal Reserve may initiate a third round of quantitative easing.
"We are likely to see a reasonably strong policy response in a number of countries," Angus Gluskie, managing director at White Funds Management in Sydney, told Bloomberg. "It's stacking up to be a reasonably good buying opportunity."
US futures were encouraged by rebounds across Asia this morning. Japan's Nikkei rallied 0.6%, Shanghai 0.15% and Hong Kong's Hang Seng 0.95%. Dow futures were recently up 48 points or 0.4%.
The morning's economic news reinforced the downbeat tone of recent releases. The services sector contracted for a fourth straight month in May, albeit at a slower pace than in April. The performance of services index improved to 43.5 last month from 39.6. A separate report showed the current account deficit increased in line with expectations over the first quarter of the year. The shortfall increased from a revised $9.64 billion last year to $14.89 billion.
Crude oil futures rallied 68 cents this morning to US$84.87 a barrel. Spot gold was $2.10 stronger at US$1,622.20 an ounce. The dollar was buying 97.64 US cents.
A decent morning if you bought yesterday, even though the predictable fade has been setting in ahead of the RBA rate decision. Not enough volatility for my sort of trading. Of 146 price alerts this morning, just two went off and I didn't trade either. Instinct said buy QAN at the open for a fast bounce but I hesitated and the opportunity passed. SSN was another fleeting opportunity in the low 8s. Well done if you're ahead today.
