Last-minute rally caps off a volatile session for US stocks, ASX futures up 90 points

Closing levels across major European & US indices look great this morning: Italy, France & German all up over 3%, in the US the S&P 500, Dow and NASDAQ averaged close to +2.5%. Less than one hour before the close, however, US markets were close to being flat until investors got excited again and bought just about everything. US equities followed WTI & Brent crude higher (as illustrated in today's first chart), with crude oil rising 10% for the session. Copper (see second chart) rose 4.47%, which is significant, given it's such a popular leading indicator for global growth prospects. Copper is still down over 3% on a rolling monthly basis; however, it was recent equity weakness that pushed it lower out of its consolidation pattern that was forming throughout early August and if traders believe that it will break higher and re-form a base of buying support above current levels, then short-term buying could easily continue. Today's second chart illustrates the recent (down)trend channel and the early signs of copper testing that upper range. The trend from here will likely be dictated by whether the world gets behind China's attempt to stimulate its economy and demonstrate significant evidence of infrastructure construction tied to its 'One Belt, One Road' initiative.

With regard to growth, investors would have drawn confidence from second-quarter US GDP growth figures, which came in at an annualised rate of 3.7%, outstripping expectations of 3.2%. This builds upon Wednesday's 101.5 (expanding) consumer confidence score and better-than-expected durable goods orders. So while equity markets have been volatile, it seems that the underlying (backward-looking) US economy is continuing to emit satisfactory economic data and this is no doubt helping fuel the recovery in US stocks. The trick will be to ensure that this market volatility doesn't dent confidence too much and keep the data momentum going.

The broad rally in commodities last night, which pushed the Thomson Reuters CRB Index 3.97% higher, will assist Australia's resources stocks today while financial names will likely broadly benefit from general strength, but the big test will be whether investors have the nerve in Australia to remain bullish into a Friday night close. Just recently you'll remember the Friday sell-offs associated with the Greek crisis (admittedly a lot more political activity can take place on a weekend than equity market activity), and last Friday night's US equity sell-off will be fresh in the minds of traders today.


Source: Rivkin, Saxo Bank

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This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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