Our market is heading for one of the strongest openings in months later this morning after surprise news from China and Europe triggered big gains overnight Friday.
The surprise interest cut in China and hints from the European Central bank head Mario Draghi that its easing program may be expanded, drove the strong market trading on Friday night, our time.
China’s rate cut came after Asia’s markets had closed for the week, so there should be a solid start in Tokyo, Hong Kong and the rest of the region this morning.
The big November sell down in the Australian market should come to an end, at least for today, after the market lost more than it has in any week in the past 18 months.
China’s central bank cut its key lending rate by 0.40% to 5.6%, the first reduction in two years. The deposit rate was cut by a smaller 0.25% to 2.75%.
The move followed a string of reports showing the economy and especially property continues to slow and is heading for its weakest annual growth rate in 25 years at around 7%. The final straw may have been the news last week that activity in China’s huge manufacturing sector surprisingly slowed at the start of this month to a six month low.
China’s rate reductions came as Mr Draghi spoke of his determination to use more aggressive measures, such as large scale asset purchases, to ensure the eurozone does not slump into a new crisis.
That cheered European markets, and with the Chinese cut, growth-oriented and Chinese-oriented shares and commodities also bounced.
As a result, the share price futures contract has the Australian market opening more than 50 points, or just under 1% higher, at the start this morning.
That’s a big change from losses of the past week – such as the 2.8% slide on the back of falling iron ore and oil prices last week.
Judging by the futures trading and the scramble on offshore markets Friday night, there shouldn’t be any chance of a sell off later today here or in Asia.
That will help reverse the 0.8% fall in Tokyo shares last week – the first in four weeks, as the country went to the polls next month in the wake of a dip into the 4th recession in six years.
Gold, oil, copper and other commodities rebounded as well.
Brent crude oil back above $US80 a barrel, US interest rates eased, the dollar gained, the Aussie dollar ended around 86.70 USc, but lower over the week, and the euro fell.
The Dow jumped 91.06 points or 0.5% to close at 17,810.06, the S&P 500 added 0.5% to 2,063.50 and the Nasdaq Composite rose 0.2% to 4,712.97.
Over the week the Nasdaq rose 0.5%, the S&P 500 added 1.2% and the Dow added 1%.
For markets in Europe, the news from China and the ECB added to what had been a solid week.
European shares ended up 3% to 4% helped by the combination of good US economic data, the rate cut in China, which came after Asian markets closed and a strong signal from ECB President Draghi that its quantitative easing program will be expanded.
Chinese shares also rose but by just 0.3%, while Japanese shares fell 0.8% and Australian shares fell 2.8% dragged lower partly on the back of further falls in the iron ore price.
Bond yields mostly fell but some commodities got a late boost by the Chinese rate cut.
The MSCI world equity index which tracks shares in 45 nations, was up 0.75% last week, with a lot of that coming Friday night.
In Australia the ASX 200 index lost just on 12 points on Friday to end 0.2% lower at 5304.4. The 2.8% loss was the biggest weekly loss since May of last year.
The All Ordinaries index fell 10.4 points, or 0.2%, on Friday to 5292.1, taking the weekly fall to 2.6%.
BHP Billiton dropped 4.7% last week, to end Friday on $31.70 over the five trading days, while Rio Tinto shed 6.1% to $56.41, both hitting new lows for the year.
Fortescue plunged 11.8% to just $2.69 – its lowest in over five years – and other, smaller iron ore miners were sold down heavily as well.
Supermarket owners Woolworths and Wesfarmers also weighed heavily on the market, dropping 6.3% and 5.7% respectively, to $31.60 and $41.56 on Friday.
Both giant retailing groups are now on the nose so far as investors are concerned with fears about weak results and losses in some businesses.
Wesfarmers is also being dragged down by its coking and thermal coal mining operations.
In contrast, the banks did relatively well, with falls much smaller than the miners.
Commonwealth Bank shares fell 2.1% to $80.09, NAB shares dipped 1.3% to $32.27, ANZ shares dropped 1.6% to end on $31.82 and Westpac shares lost 2.4% to close Friday at $32.25.
