Relief Rally

Investors are looking at welcome relief in trading day as seller exhaustion gives way to a strong buying impulse. The spark was a 4% rally in mainland China markets yesterday. Poor trade data over the weekend has fired speculation of further support from the PBoC, driving metals and energy markets higher, and snapping the back of seven straight trading days of share market selling. The announcement of a U$37 billion purchase by Warren Buffet’s Berkshire Hathaway group added fuel to the share market rally.

A renewed global appetite for shares speaks directly to local concerns about the ability of markets to absorb capital issues from the major banks. Further, commodity prices jumped, as oil and copper made significant gains, and gold is back over U$1100 an ounce. These factors, along with a “Buffet confidence” signal, should see strong gains at the opening. The current futures market indication of a 36 point gain may be an underestimate.

However, investors will watch the Shanghai open carefully. If recent volatility continues, and yesterday’s gains are reversed, sentiment may curdle quickly. Balancing this potential drag, expectations that a read on Australian business conditions and confidence will slip back after the previous surge suggest the risk on this read is skewed to the positive.

In pre-market reporting Cochlear has missed expectations significantly, Transurban is just below forecast and Domino’s Pizza has exceeded consensus estimates. Attention now turns to Bradken, due for release during the morning session.

For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.