Good data and strong market reactions overnight have Australian shares poised for a jump at today’s opening. Local optimism is further supported by a lower Australian dollar against both the US dollar and the Japanese yen, highlighting the potential for international buyers to push stocks higher. Further falls in commodity prices may temper enthusiasm.
The shift to positive sentiment started with comments from China over the weekend that indicated further central bank stimulus is imminent. However, stronger than expected German inflation and US numbers showing surprise increases in personal income and pending home sales drove buying. Investors were in a “on the one hand, on the other hand” mode, responding positively to good economic news and comforted by the potential for ECB and PBoC action should the scenario sour.
Although commodity prices came under further modest pressure, pre-market indications are for strong gains in miners and energy stocks. These sectors dragged the index lower yesterday, and accounted for an underperformance of the region. Gains here could see Australian shares lead the charge higher, but the falls in the underlying commodities may see them come back to the pack by the end of today’s session.For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.