need2know: Oil-fuelled rally

need2know: Oil-fuelled rally

Volatility is the word of the day. Photo: Laureen Brabant Volatility is the word of the day. Photo: Laureen Brabant
Shanghai night field

Local shares are poised to open higher as a rally in global energy shares lifted sentiment in Europe and Wall Street, though volatility remains the watchword.

What you need2know:

• SPI futures up 30pts at 5184

• AUD at 82.14 US cents

• In late trade, S&P 500 +0.3%, Dow +0.4%, Nasdaq -0.1%

• In Europe, Euro Stoxx 50 +2.3%, FTSE +2.4%, CAC +2.2%, DAX +2.5%

• Spot gold up $US1.21 or 0.1% to $US1194.44 an ounce

• Brent oil down $US1.20 or 2% to $US59.86 per barrel

What’s on today

Australia Westpac leading index; US consumer prices, Federal Reserve meeting, current account balance; Japan exports, trade balance, imports.

Stocks to watch

Deutsche Bank has retained a “hold” recommendation on Leighton Holdings and a price target of $19.40 a share after it announced an agreement to sell its John Holland business.

Hartleys Research has initiated coverage on CUE Energy Resources with a ‘speculative buy’ and a 12-month price target of 14¢ a share on the oil and gas developer.

Ord Minnett and Shaw Stockbroking have been appointed to explore an initial public offering for software development company Readify, the Australian Financial Review reports. The deal will kick off in early 2015 with the raise said to be about $30 million.

Currencies

The Reserve Bank of Australia has reiterated that further falls in the Australian dollar are needed to help the economy adjust to falling commodity prices. Easy Forex senior dealer Francisco Solar said: “Even with these falls they prefer it to be somewhat lower, so that’s definitely another excuse to keep the Aussie capped on the upside.”

The rouble plunged more than 11 per cent against the US dollar in its steepest intraday fall since the Russian financial crisis in 1998 as confidence in the central bank evaporated after an ineffectual rate hike. It has now fallen close to 20 per cent this week, taking its losses this year against the dollar to more than 50 per cent.

White House economic adviser Jason Furman on Tuesday called the weak global environment a “headwind” for the US economy. But he focused on the euro zone, Japan and China, and noted that US exports to Russia account for only one tenth of 1 percent of the nation’s economic output.

Indeed, many analysts continue to expect that when Fed officials release their statement at 2pm in Washington on Wednesday, they will have removed language pledging to wait a “considerable time” before raising US interest rates, a long-awaited edit that would show faith in the economy’s path.

Commodities

US crude oil futures bounced off 5-1/2-year lows, and hovered around $US55 a barrel in volatile trading near that price, with US options set to expire later in the day. Global benchmark Brent crude also pared losses after plumbing a July 2009 low below $US59, but remained stuck below $US60 a barrel as major oil producers said they were in no rush to cut production and curb a growing glut. Front-month January Brent expires later in the day.

Aluminium prices hit their lowest in two months, while copper also slid after poor industrial data from China, the world’s biggest metals consumer. Three-month aluminium on the London Metal Exchange ended down 0.81 per cent at $US1906.50 per tonne, having earlier hit a two-month low at $US1900.75.

LME lead struck its lowest since August 2012 at $US1911.25 a tonne and ended down 2.44 per cent at $US1920 a tonne. Lead has been weighed down by lower growth in electric bike sales in China and high finished stocks of batteries, a trader at a hedge fund said.

United States

US stocks rose in a volatile session as energy shares rallied and investors bet the Federal Reserve will be cautious in removing support in the face of a more fragile global economy. The 43 components of the S&P 500 energy sector were in positive territory.

“There were many, many stocks, especially in the energy sector that were just trading at absolutely ridiculous prices to their fair market valuation,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. “That is really what started the rally, when investors really started to come into the energy stocks.”

Market participants also said bets on the Federal Reserve’s next move were giving stocks support. Fed officials will decide this week whether to make a critical change to their policy statement that would widen the door for interest rate hikes next year. In October, The Fed repeated that benchmark rates were unlikely to rise for a “considerable time”.

Europe

European shares staged a late rebound as the rouble recovered much of the day’s losses against the dollar. Traders pointed to comments by US Secretary of State John Kerry, who said Russia had made constructive moves toward possibly reducing tensions in Ukraine.

“Shares in Europe saw a mild recovery on Tuesday shaking off concerns of further oil price depreciation thanks to a record trade surplus for the Eurozone as well as an improved manufacturing and services industry outlook,” said CMC Markets UK analyst Jasper Lawler.

German investment sentiment rose sharply in December after a rebound the previous month, driven by a weak euro and plunging oil prices, a survey showed Tuesday. The investor confidence index, calculated by the ZEW economic institute, jumped by 23.4 points in December, after rising for the first time this year in November, ZEW said in a statement.

What happened yesterday

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each lost 0.7 per cent on Tuesday to 5152.3 points and 5131 points respectively, as BHP Billiton tumbled to a fresh five-year low. Shares are now at their lowest point since February and are now 3.7 per cent lower in 2014.