Australian shares this morning extended their best rally in three weeks following a surprise drop in unemployment.
At lunchtime the ASX 200 was ahead 40 points or 0.95% at 4319 as the big banks and miners rebounded after two losing sessions. The materials sector rallied 1.6% and financials 0.5%. Other notable sectors included gold +2.5%, Small Ordinaries +1.5% and consumer discretionary +1.4%. Health -0.5% was the only decline.
The market got off to a flying start despite a flat night on Wall Street as overnight news pushed investors into LYC, QAN and BLY.
"The lead from overseas was lacklustre, but we're seeing a lot of short covering," IG Markets analyst Chris Weston told Fairfax.
The rally stepped up another gear after an unexpected drop in the unemployment rate last month to 5.1% even as the economy shed 8,000 jobs. Economists had predicted a modest increase in joblessness from 5.2% to 5.3%. The apparent contradiction was attributed to a drop in participation in the labour force.
"The unemployment number is totally misleading," Shane Oliver, chief economist of AMP Capital Investors, told Fairfax. "It only fell because the participation rate fell, and that's been the story for much of the last year."
Asian markets were mixed. Shanghai added 0.26%, Hong Kong's Hang Seng fell 0.13% and Japan's Nikkei added 0.06%. Dow futures were recently up 26 points or 0.2%.
Crude oil futures rallied 17 cents this morning to US$96.13 a barrel. Spot gold was $1.20 firmer at US$1,696.70 an ounce. The dollar was buying $US1.022.
Not a good morning to be short! The LYC/QAN/BLY announcements did bulls a massive favour by highlighting "news event risk" ahead of tonight's ECB meeting. I bet there are fewer shorts in the market now than there were at the start of this session. I under-performed this morning and missed too many opportunities. Caught the low in FMG but sold early. Entered and abandoned AOC for a small loss when it belatedly dawned that it was likely to be a "Hotel California" share - easy to buy but hard to exit.
