Strong gains are tipped at the start of trade following the surprise decision by the People's Bank of China (central bank) to cut the 12-month lending rate by 40 basis points to 5.60 per cent and the 12-month deposit rate by 25bps to 2.75 per cent. The futures market is tipping a 52 point gain at the open of trade or 1 per cent.
European shares rose solidly on Friday with shares in resource stocks surging in response to the first Chinese rate cut in two years. Further, the European Central Bank chief Mario Draghi said that the ECB "will do what we must" to lift inflation and inflationary expectations. The FTSEurofirst 300 index rose by 2.1 per cent with the UK FTSE up by 1.1 per cent and the German Dax lifted 2.6 per cent. In London trade shares in BHP Billiton rose by 5.0 per cent while Rio Tinto gained 6.2 per cent.
US sharemarkets posted solid gains on Friday with the Dow Jones and S&P 500 indexes at record highs. But restraining the gains were declines by key technology stocks with Microsoft down 1.5 per cent and Netflix down 2.1 per cent. The Dow Jones rose by 91 points or 0.5 per cent with the S&P 500 index up by 0.5 per cent and the Nasdaq lifted 11 points or 0.2 per cent. Over the week the Dow Jones rose by 1.0 per cent, the S&P 500 index was up by 1.2 per cent while the Nasdaq rose by 0.5 per cent.
US treasuries rose on Friday (yields lower) after the European Central Bank chief highlighted the difficult European economy and flagged that more stimulus may be required. US 2 year yields fell by 1 point to 0.505 per cent while US 10 year yields fell by 3 points to 2.31 per cent. Over the week US 2 year yields fell by less than 1 point while US 10 year yields fell by 2.5 points.
Major currencies were mixed against the greenback in the European and US sessions on Friday as traders dissected news from Europe and China. The Euro eased from highs near $US1.2555 to lows near $US1.2375, and was around $US1.2390 in late US trade. The Aussie dollar rose from lows near US86.00c to around US87.20c, and was near US86.65c in late US trade. The Japanese yen held between ¥117.38 per US dollar and ¥118.08 and was at ¥117.77 in late US trade.
World oil prices rose on Friday in response to the Chinese rate cut and speculation that OPEC may reduce production quotas on Thursday. Brent crude rose by $US1.03 or 1.3 per cent to $US80.36 a barrel while the US Nymex crude price rose by US66c or 0.9 per cent to $US76.51 a barrel. Over the week Brent crude rose by US95c or 1.2 per cent while US Nymex rose by US69c or 0.9 per cent.
Base metal prices rose by between 0.8-2.1 per cent on the London Metal Exchange on Friday with zinc leading the gains while copper lagged. Over the week metal prices rose up to 6.7 per cent with nickel leading the way but copper rose just 0.1 per cent. Gold rose on Friday in response to the Chinese rate cut and short covering. Comex gold futures rose by $US6.80 an ounce or 0.6 per cent to $US1,197.50 per ounce. Over the week gold rose by $US11.90 or 1.0 per cent. Iron ore eased by US20c to $US69.80 a tonne on Friday and fell by $US5.70 or 8.2 per cent over the week.
Ahead: In Australia, no major economic data is scheduled. In the US, the Markit "flash" services index is released with the National Activity index and Kansas City and Dallas Federal Reserve manufacturing indexes.
Craig James is chief economist at CommSec.