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Relief rallies, surging oil to support markets

European and US shares rallied overnight in response to an improved global trade outlook. While China and the US are still far apart on trade matters the face saving announcements over the weekend eased investor fears. Both West Texas and Brent crude approached three year highs and copper jumped on the improved industrial outlook. The Australian, Canadian and NZ dollars, and the Norwegian kroner, all lifted as a result.

Italian political concerns saw European shares lift less. The MIB index shed 1.5%, and Italian bonds climbed another 20 basis points. The potential for populist policies to damage Europe’s third largest economy will likely hang over the continent for weeks or months to come, and markets are adjusting accordingly.

US ten year bonds and the USD dollar held ground. Commodity currencies featured. The NZ dollar and Norwegian Kroner reversed recent downdrafts, and the Canadian and Australian dollars traded back to the top of recent ranges. These moves against consensus could signal an increase in currency volatility as short sellers’ complacency gives way to concern.

Asia Pacific share markets factored in the improved outlook yesterday. This could see a muted response from investors today. Australian SPI futures are surprisingly week in light of commodity and share gains, and are pointing to an opening fall of 13 points. Software provider Technology One reports on its half year today. James Hardie reported a 47% plunge in net profit, despite good underlying operating results. Investors are unlikely to appreciate having to dig deep into the report to find the US $195.8 million adjustment to asbestos exposures that accounts for the loss.

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