Tech stocks, bond markets and strong Chinese economic figures drove the rally on Wall Street. (Reuters: Brendan McDermid)
Australian shares are set to open higher and continue recovering from the market bloodbath sparked by worsening US-China tensions earlier in the week.
By 7:50am (AEST), the Australian dollar had lifted strongly to 67.9 US cents — rebounding from the 10-year low it reached on Wednesday.
Market snapshot at 7:50am (AEST):
- ASX SPI futures +0.6pc at 6,533, ASX 200 (Thursday’s close) +0.8pc at 6,568
- AUD: 67.92 US cents, 55.91 British pence, 60.67 euro cents, 71.89 Japanese yen, $NZ1.05
- US: Dow Jones +1.4pc at 26,378, S&P 500 +1.9pc at 2,939, Nasdaq +2.2pc at 8,039
- Europe: FTSE 100 +1.2pc at 7,286, DAX +1.7pc at 11,845, CAC +2.3pc at 5,388, Euro Stoxx 50 +2pc at 3,375
- Commodities: Brent crude +2.7pc at $US57.77/barrel, spot gold flat at $US1,500/ounce, iron ore +0.9pc at $US94.12/tonne
Meanwhile, gold has surged to a six-year high of $US1,500 as investors scrambled to find somewhere safe to put their money.
In local economic news, Reserve Bank governor Philip Lowe will testify before the House of Representatives’ Standing Committee on Economics, in Canberra at 9:30am (AEST).
Mr Lowe is likely to be asked about the Reserve Bank of New Zealand’s surprise decision to cut interest rates by 50 basis points, and his view on the latest developments in the US-China trade war and what it means for the domestic economy.
Furthermore, the Reserve Bank will release its statement on monetary policy at 11:30am (AEST).
Investors will be paying close attention to Mr Lowe’s testimony and the RBA statement for any hints on when the next Australian rate cut might happen, or whether the nation’s economic growth projections will be further downgraded.
Rate cuts and ‘deal breakdown’
The Philippines was the latest country to cut interest rates, on Thursday, citing “benign inflation” and “the risks associated with weakening global growth.”
That followed aggressive moves by central banks in New Zealand, India and Thailand that had surprised markets on Wednesday.
“Financial markets are raising risks of recession,” said JPMorgan economist Joseph Lupton, saying that the “alarm bell” was loudest in the government bond market.
Few investors think Washington and Beijing will be able to resolve their trade dispute any time soon, and many are bracing for another confrontation.
“This most recent escalation in the US-China trade clash has increased the risk of a complete fallout in the negotiations considerably,” said Vasileios Gkionakis, a strategist at Lombard Odier.
He also said the probability of a “deal breakdown” had sharply increased from 25 to 40 per cent.
Tech-led market rebound
The Dow Jones index jumped 371 points, or 1.4 per cent, to close at 26,378.
Wall Street suffered its worst day of the year when the Dow plunged 768 points earlier this week.
The benchmark S&P 500 index rose by 1.9 per cent, while the tech-heavy Nasdaq lifted sharply by 2.2 per cent.
Technology stocks led the US rally, with Advanced Micro Devices (AMD) surging 16.2 per cent after the chipmaker launched its second-generation processor chip and said that it had landed Google and Twitter as customers.
Cybersecurity software company Symantec gained 12.3 per cent on news that chipmaker Broadcom was in advanced talks to buy its enterprise business.
Markets were boosted after China released its export figures, which were much stronger than expected, offsetting concerns about a global currency war — for now.
Chinese exports lifted 3.3 per cent in July from a year earlier, while the market was expecting them to drop by 2 per cent.
The overnight stock rally was also helped by a recovery in bond markets.
The yield on America’s benchmark 10-year Treasury bonds traded at 1.72 per cent — having dropped below 1.6 per cent in the previous session.
The returns on Australian 10-year government debt, however, is stuck near record lows of 0.98 per cent.