A positive open is likely after gains on Wall Street as the Federal Reserve left its stimulus program unchanged and European leaders scrambled for a solution to Cyprus's financial crisis.
The March SPI 200 futures contract, which expires today, rallied 21 points or 0.4% to 4984 as European stocks rebounded and oil and copper rallied.
The S&P 500 broke its three-day losing run, rising 11 points or 0.69% after the Federal Reserve signalled it will continue to buy bonds to stimulate the economy and leave its target interest rate near zero. The Dow put on 56 points or 0.39% and the Nasdaq added 0.77%.
"There is a safety net called the Fed that is under the market now, and when that is taken away, the market could run into some white water, but we think that comes later this year," a senior equity strategist for US Bank Wealth Management told MarketWatch.
The Fed concluded a review of its bond-buying program with a renewed commitment to continue the program until the jobs market improves and to leave the federal funds rate unchanged until the jobless rate falls to 6.5% - likely no sooner than 2015. Voting at the meeting was 11-1. Read more here. Although much as expected, the Fed announcement helped soothe market nerves over the prospect that the stimulus measures might be curtailed in the near future.
Most European markets rebounded overnight despite a continuing dead-lock over Cyprus's rejection of an EU/IMF rescue plan. Banks in Cyprus were likely to remain closed until Tuesday to avoid bank runs as the island's politicians scramble to find an alternative way fund a bailout plan after parliament rejected a proposed bank deposit levy. Reports said international lenders were likely to reject a "Plan B" pieced together since the parliamentary 'no' vote. Read more here. Germany's DAX bounced 0.68%, France's CAC 1.44%, Italy's FTSE MIB 2.2% and Spain's IBEX 35 1.14%. Britain's FTSE eased 0.13% after the government cut its growth outlook for the year.
A fall in US crude inventories helped oil reverse most of Tuesday's plunge. West Texas Intermediate crude for April delivery was recently up $1.08 or 1.2% at US$93.24 a barrel after a 1.3 million-barrel decline in US stockpiles last week. Analysts had predicted a two million-barrel increase.
Copper rallied off a seven-month low after analysts at Morgan Stanley predicted a pick-up in Chinese demand. The bank reported signs of increasing demand and low copper inventories. US copper for May delivery was recently up four cents or 1.2% at US$3.45 a pound. In London, copper rallied 1.2%. Aluminum, nickel, zinc and lead also advanced. Tin retreated. Read more here.
Gold fell for the first time in five sessions as some of the risk premium over Cyprus came out of the market. God for April delivery was lately down $6.40 or 0.4% at US$1,604.90 an ounce.
TRADING THEMES TODAY
RELIEF RALLY: Positive signs overnight that the market's brief flirtation with Cyprus's financial woes may be waning. Cyprus's situation appears to have improved little in the last 24 hours, but the market appears ready to move on. Elsewhere, the Fed did very much as expected, leaving everything as it was and promising not to rock the boat for some time yet. I'm not sure what caused that little drop just before the closing bell on Wall Street - possibly something Bernanke said at the Fed press conference or perhaps a disappointing profit announcement from Oracle. Either way, it may be worth watching US futures today in case there's anything to it. China's manufacturing update at 12.45pm EST (see below) will also have a say in how the day ahead plays out. Copper and oil saw nice recoveries overnight but gold's golden run came to a temporary halt.
CHINA MANUFACTURING REBOUND?: Traders will hope for further evidence today that manufacturing activity in our largest trading partner is accelerating. HSBC's China purchasing managers' index improved steadily from October through to January, before a wobble last month gave pause for thought. The flash or preliminary figure due today is predicted to rise to 51.2 from last month's reading of 50.4. The report will hit screens at 12.45pm EST.
ECONOMIC NEWS: The Reserve Bank's quarterly bulletin is scheduled for 11.30am EST. China releases manufacturing figures at 12.45pm (see above). Europe releases manufacturing data tonight, but the big interest remains Cyprus. Highlights tonight in the US include weekly jobless claims, existing home sales, Philly Fed manufacturing index, flash manufacturing, house price index, the Conference Board's leading index and natural gas storage.
