A strong night on Wall Street and a rebound in raw materials have the ASX primed for fresh 11-year highs.
Futures trade points to a market open 39 points or 0.6 per cent higher at 6614 following a “risk on” session on global markets. The ASX 200 has not traded above 6600 since the early days of the global financial crisis.
Markets got a double-shot of adrenaline overnight from stimulus signals in Europe and a possible breakthrough in U.S.-China trade talks. The S&P 500 in the U.S. rallied 0.97 per cent to end the session less than 1 per cent off a record. The Dow put on 1.35 per cent and the Nasdaq 1.39 per cent.
The initial trigger for a global rally came from Europe, where European Central Bank President Mario Draghi told a conference that the bank will consider additional stimulus measures if the economy does not improve. The speech lit a fire under European stocks. The major share indices in Germany, France and Italy all rose more than 2 per cent.
The global rally got another boost when U.S. President Donald Trump announced a renewal of trade talks with China. Trump has had more impact on the minute-by-minute shifts in market sentiment than any of his predecessors, due to his propensity for announcing policy by Tweet. Overnight he threw petrol on the rally by announcing on Twitter he will hold an “extended meeting” with Chinese President Xi Jinping at next week’s G-20 meeting. The announcement resurrected hopes that China and the U.S. will end their damaging trade war.
Raw materials subject to shifts in market sentiment all surged. Iron ore and crude oil jumped more than 3 per cent, while copper hit a three-week peak.
Iron ore reversed a two-day fall with a rise of 3.5 per cent to $US112 a tonne. Texas crude for July delivery advanced $1.97 or 3.8 per cent to settle at $US53.90 a barrel on the New York Mercantile Exchange. The close was the contract’s highest in more than a week.
Copper closed 1.7 per cent ahead on the London Metal Exchange at $US5,945 per tonne after peaking at $5,974. Aluminium gained 1.3 per cent, zinc 1.7 per cent, lead 1.8 per cent, tin 1.2 per cent and nickel 1.6 per cent.
Gold was another beneficiary of the growing shift among central banks towards lower rates. Gold for August delivery put on $7.80 or 0.6 per cent to settle at $US1,350, the highest close in 14 months.
The Australian dollar lost ground yesterday after the RBA indicated more rate cuts are likely in the months ahead. The Aussie regained those losses overnight as it became apparent the RBA won’t be the only central bank cutting this year. The Aussie was lately buying 68.8 U.S. cents.
All eyes now turn to tonight’s U.S. Federal Reserve rate policy announcement, due early tomorrow morning Australian time. Some commentators believe Mario Draghi’s intervention will increase the pressure on the Fed to announce plans to support the U.S. economy.