Market wrap: Australian stocks are set to open at a 12-week high after Europe's debt deal fuelled a massive relief rally in global equities and commodities.
The December SPI futures contract ended the night session 59 points or 1.4% higher at 4417, a level last seen in early August.
Stocks in Europe and the US soared overnight as investors welcomed Wednesday's historic agreements in Brussels. Benchmark indexes in France and Germany climbed more than 5% and the S&P 500 in the US extended its biggest monthly rally since 1974, closing 3.43% stronger on the day and 14% ahead for the month. The Dow rallied 339 points or 2.86% and the Nasdaq added 3.32%. Oil and metals also jumped.
Investors applauded yesterday's announcement of a range of measures to tame Europe's debt contagion, including the expansion of a rescue fund using leverage, voluntary 50% haircuts for private holders of Greek debt and the recapitalisation of the region's struggling banks. US investors were also heartened by signs of improvement in the US economy, where third-quarter growth accelerated to 2.5%.
"Europe has done enough for the time being," the global chief investment strategist for the IShares unit of BlackRock told Bloomberg. "It will remove near-term pressure. In the US, the GDP report was decent and it was encouraging to see the consumer hold. The fear of a recession is fading."
Financial shares recorded huge gains as European markets surged. Germany's DAX rallied 5.35%, France's CAC 6.28%, Greece's ASE Composite 4.8% and Britain's FTSE 2.89%. Societe Generale jumped 22.5%, Credit Agricole 22%, Barclays 17.6% and Deutsche Bank 17%. Notable gains in US financials included Morgan Stanley +17% and Goldman Sachs +9.5%.
The euro had its biggest advance in more than two-and-a-half years, fuelling a 1.65% drop in the US dollar index that encouraged overseas investors back into commodities. The Australian dollar jumped more than two cents to US$1.0718. Crude oil for December charged $3.62 or 4% to trade recently at US$93.82 a barrel as the European deal improved the outlook for the global economy.
Copper led another big up-leg in base metals that has a metals index on track for its best weekly performance since 2009. In London, copper rallied 6.7%, aluminium 2%, lead 5.8%, nickel 4%, tin 2.9% and zinc 5.2%. US copper was recently up 6.1%.
The chief investment officer of Verdmont Capital in Panama told Bloomberg metals prices "are popping on policy news out of Europe indicating that the banking crisis might be taking a breather. The Chinese have also recently hinted at easing monetary policy, which would be a big boost for the industrial-commodity trade... We have seen the lows for the year."
Gold recorded a fifth day of gains as the US dollar tumbled. Gold for December delivery was lately ahead $20.40 or 1.2% at US$1,743.90 an ounce.
TRADING THEMES TODAY
RELIEF RALLY SWEEPS GLOBAL MARKETS: A second day of robust gains for Australian stocks appears highly likely after a huge night on overseas markets. The ASX pre-empted much of the gains yesterday, but there should be enough euphoria to fuel another solid session today as any remaining shorts are driven out of the market. Financials were the big winners in Europe and US but our banks saw nothing like the falls overseas and therefore have a lot less to claw back. The big miners are likely to gap higher after fat gains in US trade.
SPEC MARKET TO EMERGE FROM DOLDRUMS: The pervading sense of gloom that has sidelined speculators and robbed that end of the market of trading volume these last few months is likely to abate now that Europe has mapped out a clear way forward. Momentum and breakout trading strategies should prove more profitable in the months ahead. Of course there will be bumps along the way, but the near-term outlook is brighter than it has been for months.
ECONOMIC NEWS: A momentous week ends quietly, with no major domestic news scheduled and mostly second-tier announcements scheduled tonight in the US, including personal spending, personal income, employment cost index, core price index, revised consumer sentiment and revised inflation expectations.
