Local shares are poised to start the week sharply higher, after Wall Street's S&P; 500 index closed at a record high, paced by energy stocks, and the US listed stocks of local mining giants gained following a rebound in iron ore futures.
ASX futures were up 55 points, or 1 per cent, over the weekend, signalling a renewed topping of 5900 points on the benchmark index and the potential for another near-term effort to breach 6000, though the strength of a move higher now is being called into question. The Aussie dollar tumbled as low as US73.68¢ before recovering to head into the weekend up 0.1 per cent at US74.18¢.
Oil prices took global markets for a wild ride late last week, plunging to November lows, then paring all of the losses and actually ending 1.5 per cent higher on Friday at $US49.10 a barrel on the day, which sparked a rally in US energy stocks.
Concerns about the persistence of the global glut, a rethink by many bullish investors on the outlook for prices and whether OPEC and other top producer nations will extend production cuts beyond June fuelled the swing.
After a top Saudi official all but assured markets that current output cuts would be extended when OPEC members meet later this month, the tide turned. It seems as though oil has found a ceiling and a floor, at least for the moment.
Further buoying the market's mood, a US government report showed that the American economy added 211,000 jobs last month, somewhat more than expected, and the jobless rate edged lower to 4.4 per cent. While it wasn't as if the Fed had hit for six – wage growth was lacklustre and the participation rate edged lower – the data overall added runs to the central bank's tally.
"The Fed seems determined to raise rates twice more this year as long as the economy continues to improve and despite another weak first quarter, it's hard to argue that this is happening, albeit slowly when it comes to wages," said Craig Erlam, senior market analyst at Oanda. The April jobs report "is unlikely to have altered the Fed's plans and a June hike very much remains on the table."
Outlook for US wages
Average hourly earnings edged 0.3 per cent last month from March and were 2.5 per cent higher from the previous month a year ago, the smallest gain since August.
Still, there's a more than 80 per cent probability of a 25-basis-point rate increase at the Fed's June 13-14 policy meeting, according to CME Group's FedWatch program. The Fed lifted in March and previously signalled the prospect of three increases in 2017.
Two positives on the outlook for US wages are that the number of people working part-time who would prefer full-time has reached a nine-year low, and the number of people who've given up looking for work because they don't think they can find a job is near its lowest since 2008.
In a review of Fed chair Janet Yellen's labour market dashboard, Bloomberg calculated that six of 12 data points are back to normal, another five are half way back to normal and one is lagging.
On the local market, on Monday the focus will be on Westpac's half-year results to see whether it follows the path set by Macquarie on Friday or ANZ's less upbeat results earlier last week. CBA is poised to provide a trading update on Tuesday, ahead of the release of the federal budget.
Despite recent weakness in some of the banks, as in ANZ, and the miners, Deutsche Bank said: "We remain overweight banks and resources – these sectors have a lower correlation to the market than industrials, as they tend to follow their own cycle."