Shares are set to recoup some of yesterday's losses after Wall Street shook off early nerves over a property crackdown in China.
The March SPI 200 futures contract ended the night session 32 points or 0.6% ahead at 5053 as US stocks resumed their push towards record levels and commodities searched for support near multi-month lows.
The Dow reversed an initial 60-point slide to close 38 points or 0.27% stronger at 14,128, just 36 points off its 2007 record high. The S&P 500 put on 0.45% as defensive sectors offset falls in industrials, energy and mining stocks. The Nasdaq added 0.39%.
The initial declines came after the failure of US politicians to negotiate a compromise over government spending cuts that began to come into force over the weekend and after China announced further curbs on its property market. Washington will cut federal spending by US$1.2 trillion over nine years, with an US$85 billion hit this fiscal year, unless the impasse is broken. Economists predict the cuts could slash as much as three-fifths of a percentage point off GDP.
The Shanghai Composite dived 3.67% yesterday, its biggest fall in 18 months, after the government announced new measures to quash property speculation. The new rules included increased down payments and mortgage rates for second homes and a tax on profits from house sales.
US stocks began to reverse their losses after Federal Reserve Vice-Chairman Janet Yellen added her support to the continuation of the Fed's stimulus program. Yellen cheered investors when she said she saw no reason yet to curtail the program.
"Excluding this quarter, which will be impacted by the sequester, the economy probably strengthens as the year goes on," the chief investment officer at Fiduciary Trust in the US told Bloomberg. "The Fed is going to be our friend for an extended period of time, and as the old adage goes, don't fight the Fed."
BHP and Rio Tinto continued to slide in US trade as futures markets pointed to further declines in the price of iron ore this year. Rio Tinto lost 2.54% and BHP 0.43% as six-month contracts in Singapore traded at a sharp deficit to the current front-month contract. Read more here.
Oil slipped below US$90 a barrel to its lowest level of the year as analysts factored China's property crackdown into the energy demand outlook. West Texas crude for April delivery was lately down 63 cents or 0.7% at US$90.04 a barrel after falling as low as US$89.31.
"China's move has negative side-effects on construction activity, which means demand for crude oil could be hit," a technical analyst at GFT Markets told MarketWatch.
Copper rebounded from Friday's three-month low but most base metals struggled for traction. US copper for May delivery was recently up two cents or 0.5% at US$3.52 a pound. In London, copper edged up 0.3% and tin added 0.4%. Aluminium was flat, while lead lost 1.1%, nickel 0.5% and zinc 0.9%.
Gold was little changed as traders anticipated rate decisions this week in Australia, Europe and the UK. Gold for April delivery was recently up 60 cents or less than 0.1% at US$1,572.90 an ounce after hitting a low of US$1,569.70 and a high of US$1,584.30.
European markets traded mixed but closed well off their lows despite further losses among mining stocks. Germany's DAX fell 0.21%, France's CAC advanced 0.27% and Britain's FTSE lost 0.51%.
TRADING THEMES TODAY
BOUNCE, THEN CHINA, RATE DECISION: So much for China. So long as the Federal Reserve keeps the spigots open, US traders will keep buying and the Dow/S&P will rise. Unfortunately, our resource-heavy market doesn't have the luxury of ignoring signs of slowing in China, which yesterday included a moderation in services industry expansion to the slowest pace in five months. We should claw back some of yesterday's losses at the open, but there is likely to be some caution until we find out if Shanghai is going to rally from yesterday's bloodbath. The afternoon brings a Reserve Bank rate decision, but it would be a big surprise if there was any change.
ECONOMIC NEWS: A busy week for domestic news continues today with the services index at 9.30am EST, retail sales and the current account at 11.30am and a Reserve Bank cash rate decision and statement at 2.30pm. Europe has services and retail sales figures due tonight, plus a meeting of euro-zone finance ministers. A low-key night in the US includes the services PMI and economic optimism.
