Substantial advances in industrial metals and further gains on Wall Street have Australian shares aiming higher this morning after QE3 "risk-on" buying continued overseas on Friday.
The September SPI 200 futures contract rallied 20 points or 0.5% on Saturday morning to 4390 as the US Federal Reserve's bond-buying program encouraged investors to buy commodities and resource stocks, including BHP and Rio Tinto.
The S&P 500 set a new four-and-a-half-year high, rising 0.41% as all 10 industry groups advanced. The Dow trimmed a 113-point advance to a rise of 53 points or 0.39% as the major indexes failed to hold their gains through to the close. The Nasdaq added 0.89%.
"Markets had expected more quantitative easing, but they hadn't expected Bernanke and the Fed to be as aggressive as they were," a senior managing director and portfolio manager at John Hancock Asset Management in the US told Reuters. "The Fed made it sound as if even after the economy recovers, interest rates will remain low. More people are moving into risky assets because Ben is not going to pull the punch bowl away."
A slew of economic data was released in the US on Friday. Retail sales showed their biggest increase in six months during August. Consumer confidence jumped to a four-month high this month. The cost of living had its biggest monthly surge in three years in August as rising fuel pries began to bite. Industrial production recorded its largest decline in three years as global demand weakened.
Europe's benchmark index recorded a 15-month peak as European traders responded to the launch of QE3. The Stoxx Europe 600 index put on 1.3% as Germany's DAX rallied 1.39%, France's CAC 2.28%, Britain's FTSE 1.65%, Spain's IBEX 35 2.76% and Italy's FTSE MIB 2.34%.
Resource stocks led the rally in the US as the price of iron ore rebounded and London metals traders played QE3 catch-up. Rio Tinto rallied 3.73% in the US and BHP added 2.51%. China's benchmark spot iron ore contract improved US$5.50 or 5.7% on Friday to US$101.60 per metric tonne.
Industrial metals enjoyed their best session in months in London, pushing a range of metals to multi-month highs. In London, copper surged 3.8%, aluminium 4.7%, lead 4.9%, nickel 6.1%, tin 6.5% and zinc 3.9%. US copper for December delivery charged 12 cents or 3.2% to US$3.83 a pound.
Oil briefly pushed above US$100 a barrel as continuing unrest in the Middle East raised supply worries. West Texas crude for October delivery touched an intraday high of US$100.42 a barrel before ending the week 75 cents or 0.8% higher at US$99.06 a barrel.
"You cannot fight the Fed," a senior market analyst at the Price Futures Group in the US told MarketWatch. "If you're going to put more money into the system, you change the value of the commodity. If it's priced in dollars, it's going to take more of them to buy it. And if it's going to stimulate the economy, it's going to increase demand going forward."
Gold consolidated Thursday's big advance, hovering near a seven-month high. Gold for December delivery inced up $1.40 or 0.1% to US$1,773.50 an ounce.
TRADING THEMES THIS WEEK
QE3: With genuine market-moving events at a premium this week, the main influence steering the ASX is likely to be the continuing reaction to the launch of QE3 in the US on Thursday night and the European Central Bank's unlimited bond-buying program in Europe. Some consolidation is likely this week after big advances over the last few days, but investors are likely to view any pullback as a buying opportunity now the central bank spigots have been turned on.
IRON ORE: Has iron ore seen its low for the year? Twiggy Forrest isn't the only Australian who hopes so. Steep declines in iron ore, coal and - to a lesser extent - base metals over the last few months have been a heavy drag on the Australian resources sector but last week's price action should encourage speculators. After two days of declines, spot iron ore turned sharply higher on Friday on the back of QE3, closing back above US$100 a metric tonne. The prospects for a genuine long-term reversal in price will largely depend on news out of China (see below).
CHINESE MANUFACTURING: This week brings a first look at September manufacturing figures for China. HSBC's purchasing managers' index last month hit its lowest level of the year at 47.6, well below the 50-point mark that distinguishes contraction from expansion. Any improvement when the figures are released on Thursday is likely to be well received - but as one US commentator put it, investors are wearing "central bank beer goggles", so even bad news can be a positive because it increases the likelihood of further monetary easing in China.
ECONOMIC NEWS: A light Australian diary is weighted towards the front of the week: new motor vehicle sales (11.30am EST today); minutes from the last Reserve Bank meeting (tomorrow); and the monthly leading index (Wed). The improving housing market is likely to capture the spotlight in the US this week. The economic schedule includes: the Empire state index (tonight); home builders' index (tomorrow); housing starts, existing home sales (Wed); weekly jobless claims, leading indicators and Philly Fed (Fri).
