AUSTRALIAN shares are expected to jump more than 1 per cent higher this morning after a strong lead from US and European markets over the weekend. The US reported strong jobs growth, while continental investors took a more positive view of the efforts of Europe's central bank to control the region's banking crisis.
Economists were surprised by the strength of US payrolls data, released last Friday, which showed 163,000 new jobs were created in July, far more than the 100,000 expected.
It was the most jobs added in any month since February, and encouraged investors to push US stocks to a three-month high. The Dow Jones Industrial Average jumped 221 points, or 1.7 per cent, to 13,101 points, before closing the day slightly lower on 13,609.17.
Economists said it was good news for the world's biggest economy, which has been struggling for months with weak economic activity, though it was not enough to prevent the US unemployment rate creeping up from 8.2 to 8.3 per cent.
"It's a promising sign that the US isn't going to see a double-dip downturn ... it certainly suggests that the US economy is still growing, which is pretty positive," the HSBC Australia chief economist, Paul Bloxham, said.
"[But] you've got to keep in mind that the US has to create 180,000-odd jobs a month to put sustained downward pressure on the unemployment rate, so it's not quite there yet."
European markets rallied strongly after investors reassessed the European Central Bank's bond-buying plans, announced at its policy meeting on Thursday.
After initially being disappointed when the bank's president, Mario Draghi, failed to provide full details of the program, markets surged on Friday, with Italian (up 6 per cent), German (up 3.9 per cent), European (up 4.8 per cent), and London (up 2.2 per cent) bourses rallying strongly.
Those gains are expected to feed through to the local market, with the futures market yesterday suggesting a rise of 58 points, or 1.4 per cent.
All eyes will be on the Reserve Bank board meeting tomorrow, where the overnight cash rate is expected to remain unchanged at 3.5 per cent.
On Thursday, the Bureau of Statistics releases July labour force figures.
Profit reporting season begins this week. Rio Tinto releases its first half financial results on Wednesday, along with Harvey Norman Holding, which releases its quarterly sales results. On Thursday, Tabcorp Holdings, News Corporation and Telstra release full year results.