Shares are set to open higher after metals extended recent gains and US traders turned hopeful ahead of this week's key news events.
The September SPI 200 futures contract ended the night session 18 points or 0.4% ahead at 4342 as the Dow closed at its strongest level in nearly five years.
US and most European markets rallied after a German court rejected an appeal that threatened to delay tonight's verdict on the constitutionality of Germany contributing to bailout funds to tackle the euro-zone debt crisis. The blue chips of the Dow spearheaded gains, rising 69 points or 0.52% to its highest close since December 2007. The S&P 500 added 0.31% and the Nasdaq trailed at +0.02% as Apple eased 0.32%.
Germany's Federal Constitutional Court will rule tonight on whether the government can approve euro-zone rescue funds, after dismissing an appeal that threatened to postpone a decision. A prominent German eurosceptic had asked the court to consider last week's European Central Bank announcement of plans for an unlimited sovereign bond-buying program.
The Federal Open Market Committee gathers tonight for a two-day session that is expected to discuss ways to stimulating the US economy following a run of deteriorating economic data. The US dollar and treasuries weakened and commodities and equities rallied overnight in a sign that investors anticipate further monetary easing.
"The scenario is looking very much like September 2010 when Fed Chairman Ben Bernanke signaled an easing at the Jackson Hole conference and the Fed eased in November," the head of fixed income macro strategies at ING Investment Management in the US told Reuters. "Equities rally, the Treasury curve steepens, and the [US] dollar weakens."
Most European markets took their cue from early gains on Wall Street. Germany's DAX put on 1.34% and France's CAC added 0.89%. Britain's FTSE was little changed at -0.02%.
Rio Tinto and BHP both rose 2% in US trade as iron ore continued to rebound from three-year lows. The Asian benchmark spot ore price yesterday rallied another US$5.20 or 5.5% to US$100.20 per metric tonne.
Copper locked in a third night of gains in London as base metals continued to benefit from hopes of stimulus measures in the US and China. In London, copper gained 0.3%, aluminium 1%, lead 0.4%, nickel 0.3%, tin 0.4% and zinc 0.1%. US copper for December delivery was recently flat at US$3.69 a pound.
"Everybody and their grandmother are betting on at least some short-term stabilisation in these markets just due to some kind of collective or coordinated intervention or monetary policy," the head of asset allocation for Great Pacific Wealth Management in the US told Reuters. "It's absolutely all speculative on the fact that we are going to see raw commodities move higher based on liquidity-fuelled inflation."
Gold caught a mild up-lift from a threat by ratings agency Moody's to cut the US's triple-A debt rating unless politicians act on the nation's heavy debt burden. Gold for December delivery was lately up $2.70 or 0.2% at US$1,734.50 an ounce as the US dollar index dropped to its lowest level since May.
Oil extended its bull run to a fifth night amid speculation that tonight's US inventories report will show another sharp decline due to the after-effects of Hurricane Isaac shutdowns in the Gulf of Mexico. West Texas crude for October delivery was recently up 40 cents or 0.4% at US$96.94 a barrel.
TRADING THEMES TODAY
MARKET PRE-EMPTS GOOD NEWS: The market is telling us that we should expect a double dose of supportive news over the next two nights: a 'yes' to the euro-zone rescue plan in Germany tonight and then at the very least a signal tomorrow night that the US Fed is ready to stimulate once again. Of course, the market occasionally gets it wrong and the consequences for equities would be ugly. But the Dow has gained in four of the last five nights and that's a pretty good indicator of what is coming. The ASX has lagged recent gains in the US, Europe and Asia in large part because of concerns about the impact of the slowdown in China. But with iron ore and base metals bouncing hard, there is ample room for our market to play catch-up - provided the Fed and German court play ball.
ECONOMIC NEWS: Monthly consumer sentiment data is due at 10.30am EST, followed by quarterly housing starts at 11.30am. All eyes will be on Germany tonight for a ruling from the Constitutional Court on the government's authority to ratify the European Stability Mechanism. The Netherlands goes to the polls tonight for an election that will be at least in part a referendum on how the government has handled the debt crisis. Highlights of a low-key night in the US include import prices, wholesale inventories and crude oil inventories.
