The Australian share market will start the week hostage to events in Europe, where Cypriot leaders were this morning still wrangling over a deal to avert financial collapse.
The June SPI 200 futures contract rallied 24 points or 0.5% to 4993 on Saturday morning as Wall Street bet that Cyprus will secure a rescue package and avoid a messy exit from the euro. However, at time of writing the the Mediterranean island nation remained locked in negotiations with its "troika" of lenders, the European Central Bank, European Union and International Monetary Fund.
Recent reports said Cypriot President Nicos Anastasiades had threatened to resign as negotiations come down to the wire. EU economics chief Olli Rehn said a deal must be reached by the time EU finance ministers depart from this morning's crisis meeting in Brussels. The Cypriot parliament is reported to be on standby to pass any legislation necessary before the start of Europe's working week. Read here for live updates on the developing situation.
On Friday, US stocks pared a losing week as traders bet that Cyprus and its lenders will pull back from the brink. The S&P 500 advanced 11 points or 0.72% as upbeat profit reports from Nike, Tiffany and Micron Technology bolstered sentiment ahead of another quarterly earnings season. The Dow jumped 93 points or 0.63% but ended 0.01% underwater for the week, breaking a four-week winning run. The Nasdaq put on 0.7% but also logged a loss for the week, as did the S&P 500.
"While the market may be vulnerable because it's up so much, the US economy is in a better shape and better position to withstand the whole euro zone and Cyprus situation," the managing director of active trading and derivatives at Charles Schwab in the US told Reuters.
Shares in Nike and Micron surged more than 10% as both reported earnings that exceeded analysts' expectations. All 10 S&P 500 industry groups gained on Friday, but risk appetite remained restrained with the Russell 2000 index of small caps rising 0.25% and the Dow Jones Transportation Index and Morgan Stanley Cyclical Index both trailling the broader index at +0.63%.
Earlier, European markets closed a choppy session little changed as traders watched developments in Brussels and Nicosia. Germany's DAX lost 0.27%, France's CAC dropped 0.13% and Britain's FTSE inched up 0.07%.
Oil was among the stand-outs in commodity markets, flying higher in the final hour of trade amid speculation about a resolution to the Cypriot stand-off. West Texas Intermediate crude for May delivery gained $1.35 or 1.5% at US$93.80 a barrel.
Copper continued to recover from Tuesday's seven-month low as bargain-hunters helped support beaten-up base metals. US copper for May delivery edged up three cents or 1% to US$3.47 a pound. In London, copper put on 0.5%, aluminium 1%, lead 0.7%, nickel 1.3%, tin 0.9% and zinc 0.9%.
Precious metals lost ground as traders favoured riskier assets. Gold for April delivery fell for just the second time in seven sessions, losing $6.30 or 0.4% at US$1,607.50 an ounce, but securing a gain for the week of roughly 0.9%. Silver for May delivery dropped 52 cents or 1.8% to US$28.70 an ounce.
TRADING THEMES THIS WEEK
CYPRUS: The brinkmanship in Europe was continuing this morning, casting a cloud over the start of the Australian trading week. Some sort of compromise between Cyprus and its lenders seems likely but the timing may be tricky for local traders. A deal announcement could come at any time, altering the outlook for the week, but the devil will be in the detail. MarketWatch speculates here about the implications for markets. See also above for a live link to developments.
HOLIDAY-SHORTENED WEEK: The prospect of the four-day Easter long weekend may see some caution creep into our market towards the end of the week, especially as the US trades next Monday. Many traders will close some positions for peace of mind with Wall Street due to trade twice between the ASX close on Thursday and re-opening on Tuesday.
ECONOMIC NEWS: A light week for scheduled domestic news includes: a speech by RBA Governor Glenn Stevens at the annual ASIC Forum (tomorrow); Reserve Bank financial stability review (Wed); and inflation gauge and private sector credit (Thu). This week's US highlights include: durable-goods orders, consumer confidence, new home sales (tomorrow); revised GDP (Wed); and weekly jobless claims, personal income, consumer spending and consumer sentiment (Thu).
