Europe's strongest night in a month and gains in oil and metals should give Australian shares a positive start after a slowdown in China's manufacturing added to pressure for fresh global stimulus measures.
With Wall Street closed overnight for the Labor Day public holiday, the September SPI 200 futures contract last traded nine points or 0.2% ahead at 4345 at midnight. However, this morning's share-market open may be firmer after European markets extended gains during the night.
A regional index, the Stoxx Europe 600, rallied 0.8% for its strongest advance since August 3 as traders anticipated Thursday's European Central Bank policy meeting and interpreted yesterday's disappointing Chinese manufacturing news as heightening the likelihood of more quantitative easing. Germany's DAX put on 0.63%, France's CAC 1.19%, Britain's FTSE 0.82% and Italy's FTSE MIB 1.1%.
"We are waiting anxiously for the US to see whether they are going to do QE3, to see what the European Central Bank is going to do and what China is going to do," Nick Maroutsos, managing director and co-founder of Kapstream Capital in Sydney, told Bloomberg. "'Tis the season for stimulus, in terms of monetary policy as well as fiscal policy."
With US Federal Reserve Chairman Ben Bernanke keeping quantitative easing on the table in his Jackson Hole speech on Friday, a weak round of economic news over the last 24 hours was seen as further reason for central banks to stoke the global economy. China's official manufacturing index turned negative yesterday for the first time in nine months and a private index was revised downwards. Australian retail sales suffered their biggest decline in two years during July. A euro-zone manufacturing index was revised downwards for its 13th month of contraction but a UK measure rebounded.
Copper pushed to a one-week high as the US dollar moderated against the euro. In London, copper added 0.8%, aluminium 1.2%, lead 1.6%, nickel 1.6% and zinc 1.5%. Tin was unchanged. US trade was suspended for the public holiday.
"China PMI was weaker than expected but all that's done as with other data in the US and elsewhere is to stoke more hopes of stimulus or easing," a Societe Generale analyst told Reuters. "That's why commodities and metals are still hogging the recent highs. It's not a good foundation for sustainable increases. It means commodities can rally but that rally will attract speculative selling."
Oil extended Friday's gain in electronic trade in New York. West Texas crude for October delivery advanced 58 cents or 0.6% to US$97.05.
Gold remained well supported by inflationary stimulus speculation. Gold for December delivery was lately up $7 or 0.4% at US$1,694.90 an ounce in electronic trade in New York.
TRADING THEMES TODAY
HOLDING THE GAINS: We're clearly in one of those bizarre market moods where bad economic news is seen as a plus for equities and commodities because it increases the likelihood of central bank intervention. Otherwise it's impossible to account for yesterday's market response to dismal economic figures released here and in China. Europe advanced enough overnight to encourage further gains here this morning, but the ASX is unlikely to push too high before the US re-opens tonight. The Reserve Bank sits today and will announce the cash rate here at 2.30pm, but few economists expect any change today from the current rate of 3.5%. Gold, oil and industrial metals all edged higher overnight but the benchmark Chinese iron ore price slipped 30 US cents or 0.3% yesterday to US$89.10.
ECONOMIC NEWS: Current account figures are due at 11.30am EST, followed by a Reserve Bank cash rate announcement and statement at 2.30pm. The US has manufacturing data, construction spending and vehicle sales.
