Optimism over a successful Greek debt swap drove international stocks and commodity prices higher overnight, setting up Australia for another positive session.
The March SPI 200 futures contract ended the night session 33 points or 0.8% ahead at 4198 as Wall Street and Europe cheered reports that Greece will avoid a disorderly default by getting enough private lenders to agree to a voluntary bond exchange before this morning's deadline.
The S&P 500 sealed its best two-day rally of the year overnight as US stocks snapped back from Tuesday's sharp sell-off. The benchmark index surged 0.98%, with cyclical sectors such as resource stocks leading the way. The Dow put on 71 points or 0.55% and the Nasdaq added 1.18%.
European stocks also rallied strongly as the state-run Athens News Agency reported that more than 80% of private lenders will take part in a bond exchange designed to avoid a Greek default and secure for the country a second bailout package. Participation at that level would comfortably exceed the 75% target set by the Greek government to ensure the swap proceeds. The full participation rate is not due to be published until 6am GMT or 8pm AEST tonight, according to the Wall Street Journal.
"Greece has no choice and the bondholders have no choice," the vice-chairman of Silvercrest Asset Management in the US told Bloomberg. "They're both in the mud. I believe they will accept the swap. That will cause a moderate sigh of relief in the market. How long it will extend? That's the big question mark."
European markets were also encouraged by a more bullish outlook from European Central Bank President Mario Draghi, who hailed the bank's stimulus lending program as an "unquestionable success". Britain's FTSE jumped 1.18%, Germany's DAX 2.45% and France's CAC 2.54%. The Athens General Index surged 3.2%.
US weekly jobless claims ticked up to a five-week high, a weaker result than expected but still at levels consistent with an improving employment market. Last night's equity rally came as the market anticipated a strong result in tonight's monthly government employment report.
Risk appetite was solid throughout the commodities sector as Greece dominated the headlines and the US dollar and US government bonds retreated. Oil rallied for a second session, pushing futures April delivery up 53 cents or 0.5% to US$106.69 a barrel.
Gold also advanced for a second night as the European Central Bank and Bank of England left their lending rates at stimulatory levels. Gold for April delivery was lately ahead $17.20 or 1% at US$1,701.20 an ounce.
Most industrial metals improved as the risk of a chaotic Greek default receded. In London, copper added 0.5%, aluminium 0.1%, lead 1.8%, tin 2.3% and zinc 1.8%. Nickel fell 0.7%. US copper was recently up 0.8%.
TRADING THEMES TODAY
REBOUND CONTINUES: Big sigh of relief. Greece may finally be moving off the front of the financial pages, for a while at least. Certainly, overseas markets behaved as if the latest chapter in the long-running drama is coming to a close, giving equity markets breathing room to move higher if the recent wobble in economic reports turns out to be no more than that. Financials were once again among the market leaders in the US, with resource stocks also strong and small caps outperforming once again. We should see a solid end to a choppy week on the Australian market.
CHINA UPDATE: Hopes for further monetary easing in Australia's biggest buyer of raw commodities depend to a large extent on further declines in inflation. Today brings the February update, with consumer inflation tipped to retreat to 3.5% from 4.5% and producer inflation to 0.1% from 0.7%, according to Forex Factory. Other data, including industrial productions, retail sales and fixed asset investment, may also emerge today. The inflation report is due at 12.30pm EST.
ECONOMIC NEWS: A busy 24 hours for scheduled news includes Australian trade balance figures at 11.30am EST, Chinese inflation at 12.30pm (see above), a raft of European data tonight including the participation rate in the Greek debt swap at 8pm, and in the US the all-important monthly jobs report, unemployment rate, trade balance, average hourly earnings and wholesale inventories.
