The auguries for the local market today look good – a solid bounce on Wall Street in the last hour of trading this morning, a solid gain here in futures trading and the dollar back over 78 US cents – and the Reserve Bank board meeting today which (in the market at least) is widely expected to see a cut in the cash rate to 2.25%.
In fact Wall Street started with triple digit losses for the Dow and big dobs of red ink for the S&P 500 and the Nasdaq, and ended trading with a triple digit gain for the Dow and big dobs of green for the S&P 500 and the Nasdaq.
Wall Street had fallen early after weak readings on the health of manufacturing (it is still growing solidly, but not as solidly as previously reported).
And the market was surprised by a fall in consumer spending in December of 0.3% (the market had been looking for a rise of 0.2%) as investors saved their petrol price fall bonus and didn’t spend it.
The Dow ended up 1.14%, the S&P 500 rose 1.3% and Nasdaq was up 0.90%.
For the past 8 days, rising hopes for rate cut from the Reserve Bank of Australia have overshadowed worries about the renewed fears about Greece’s place in the eurozone, falling oil and iron ore prices (both are now rising) and weak data for the local economy.
The local market rose 3.3% in January and continued with a 0.6% gain yesterday (despite falls elsewhere in Asia) and a 25 point gain is expected today.
Yesterday’s rise surprised after the futures trading on Saturday tipped a fall at the start of trading yesterday.
But, buoyed by the rising belief that interest rates would be cut by the RBA today, investors ignored offshore leads and chased shares higher, including resource stocks.
Our investors even ignored the weak data from the two monthly surveys of Chinese manufacturing – one showed the weakest reading (contraction) for more than 2 years.
Gold and energy stocks also rose yesterday after a solid gain on Friday.
In London, Brent oil up $US1.63 or 3.1% to $US54.62 per barrel. That was after the 7.9% surge on Friday night.
West Texas style crude in New York rose 3.2% to $US49.78, after an 8.3% rise on Friday night. Brent crude is now up 23% from its low in mid January, WTI crude is up 16% from its low of $US43.60 last Thursday.
That has quite a few analysts in Europe and the US calling an end to the fall and forecasting a solid rebound for oil.
But others caution the price rises has more to do with short covering by speculators.
The Chinese spot iron ore price rose 0.4% overnight to $US62.45 per metric tonne. But gold eased $US4 to $US1,275 an ounce.
And if the RBA leaves rates steady, what will the market do? If there’s no change in the wording of the governor’s post meeting statement, then it will sell off heavily.
But there is expected to be some significant change in the wording which should keep investors on the hook for a rate cut next month or in April.
