Market wrap: Shares are pointed higher this morning after a fall in Italian bond yields and improving consumer confidence fuelled a strong Friday rally in US stocks.
The December SPI 200 futures contract closed 44 points or 1% stronger at 4353 on Saturday morning as oil neared US$100 a barrel and copper led a recovery in metals.
US and European stocks surged after the passing of austerity measures in the Italian parliament sent the 10-year bond yield back below critical levels. A broad rally lifted all 10 sectors of the S&P 500 as the benchmark index put on 1.95%. The Dow jumped 260 points or 2.19% and the Nasdaq added 2.04%.
Earlier, European markets celebrated news that Italy's Senate had approved new austerity measures, clearing the way for Prime Minister Silvio Berlusconi to resign over the weekend and raising hopes that Europe's third-biggest economy is taking the necessary steps to avoid a default. Economist Mario Monti was this morning named as Berlusconi's successor to lead a new unity government in Italy.
Italy's 10-year bond yield closed at 6.76% on Friday, fuelling a 3.68% rally on the nation's benchmark share index, the FTSE MIB. Britain's FTSE added 1.85%, Germany's DAX 3.22% and France's CAC 2.76%.
US investors also welcomed further signs of improvement in consumer sentiment ahead of the all-important Christmas shopping season. A preliminary sentiment index rose from 60.9 last month to 64, the highest reading since June but still at relatively low levels.
"It's like investors hit the keystroke to 'Risk On'," the chief investment strategist at Janney Montgomery Scott in the US told Bloomberg. "The European situation is seemingly coming to some closure and a decent consumer confidence report brought investors to risk assets."
Oil hit its highest level since late July as traders focused on the recent improvement in US economic news. Crude for December delivery gained $1.44 or 1.5% at US$99.22 a barrel.
Copper had its first gain in six days as a report showed Chinese bank lending increased last month and London Metal Exchange stocks continued to decline. In London, copper rallied 2.3%, aluminium 1.5%, lead 3.45%, nickel 0.2%, tin 3.2% and zinc 1.8%. US copper put on 3.3%.
A near-1% decline in the US dollar index helped gold rebound from two days of falls. Gold for December delivery increased by $29.60 or 1.7% to US$1,789.20 an ounce.
TRADING THEMES THIS WEEK
ITALIAN BOND YIELDS: As market commentator Peter Boockvar put it on MarketWatch on Friday: "Italian yields down, stocks up; simple as that. The stakes cannot be higher with the world's third-largest bond market staring into the abyss... I can't express enough the danger to the global economy if Italy loses access to the capital markets." The initial reaction to austerity moves on Friday was positive, driving the 10-year yield down to 6.76%, back below the 7% level where the cost of borrowing becomes so onerous that a default is possible. The yield will be watched closely this week for the reaction to Berlusconi's resignation and Mario Monti's likely elevation to Prime Minister. Track Italy's 10-year bond yield here.
US RECOVERY BACK IN FOCUS: If last week was all about Europe, this week might see a welcome switch to the recent improvement in US economic data. Fears of a double-dip recession have eased lately as recent reports have showed an economy slowly picking up after a mid-year slump. This week's key reports include retail sales (tomorrow), consumer inflation and industrial production (both Wed). The schedule looks like this: retail sales, producer price index, core PPI, Empire state index, inventories (Tue); consumer price index, core CPI, industrial production, capacity utilisation, home builders' index (Wed); weekly jobless claims, housing starts, Philly Fed (Thu); and leading indicators (Fri).
ECONOMIC NEWS: This week's domestic schedule includes: the minutes from the last Reserve Bank monetary policy meeting, new car sales (tomorrow); leading index, wage price index (Wed); and a speech by Reserve Bank Governor Glenn Stevens at the Institute of Internal Auditors Financial Services Forum in Sydney (Thu).
