Logic overtakes fear on Wall Street

Investors are leaning more towards economic fundamentals as rational thought overtakes fear.

The more the US economy improves, the less Ben Bernanke’s taper talk scares markets.

Wall Street is gradually climbing back to record levels and should arrive there within days after another solid run overnight on the back of an improving American jobs climate.

The numbers, released on Friday, showed unemployment steady at 7.6%, but with jobs growth and greater workforce participation.

As a measure of the turnaround in sentiment, last night’s positive reaction shows investors are now giving more weight to improvements in the fundamentals rather than the fear of having their stimulants removed.

The Australian market is braced for a strong start. Higher base metal prices, with rises of up to 3% for tin, and an improvement in the gold price will provide support for miners, while a steady oil price should see investors maintain demand for energy stocks (see Adam Carr's Can Australia avoid a confidence death spiral?).

European markets rose strongly with gains of up to 2%, providing added confidence for local investors.

The Australian dollar gained support overnight, or rather profit taking on the greenback lifted the local currency back above US91c.

Business confidence, which has remained brittle all year, will be the only read for investors today as the market awaits official employment numbers tomorrow. After yesterday’s ANZ employment advertising survey showed a significant drop, most economists are tipping a rise in unemployment for June.

Should that be the case, the Reserve Bank will be more inclined towards a rate cut in the near future, particularly if the quarterly inflation figures, due out next week, are benign as expected.

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