8@eight: ASX set to rebound as Wall Street surges

Wall Street's best day since August 2015 has the Australian sharemarket poised to start the day on a positive note.

1. Wall Street steadies before the pain gets serious: We were left on a cliff's edge last week with the US close Friday. The nasty tumble through the week accelerated into significant support – like the 15-month trend line support for the S&P 500. Since much of the pain was felt through the US afternoon Friday, the Asian and European markets already closed at the time would be encouraged to discount to that loss of value. As such, it wasn't too surprising to see European markets under pressure Monday and closing in the red. The mixed performance for Asia however offered an interesting assessment of global sentiment continuing over the weekend to create a self-sustaining momentum. Yet, the liquidity fire break seemed to rewire fear a little more aggressively than would be expected when New York trade opened Monday. The opening gap for the S&P 500 to open the week amounted to 1.2 percent – the largest bullish jump on the first trade since November 2008. Further gains were added through the session, but is this a roaring endorsement for buying a more exaggerated 'dip'? There is certainly a toe hold for fundamental optimists with reports that US and Chinese officials are negotiating trade, but the circumstances of this complicated relationship are such that placing confidence on this process is an exceptionally speculative approach.

2. US Dollar threatens break of two-month uptrend: The greenback is back on the defensive at the start of the trading week. The currency fell even as front-end Treasury bond yields recovered and the priced-in rate hike outlook implied in Fed Funds futures steepened amid a recovery in risk appetite. That suggests ebbing haven demand following last week's liquidation is the likely catalyst. If this opens the door for the return to speculation that a broadening global recovery will push top central banks to follow the Fed's hawkish lead, USD may suffer deeper losses. Indeed, prices are threatening to break the bounds of the rising trend carved out against the US unit's top counterparts from late-January lows.

3. Gold gains but most commodities lower: Gold prices enjoyed a lift at the expense of the weaker US dollar, leveraging its appeal as an anti-fiat alternative. Crude oil prices retreated however, rebuffing geopolitical risks that helped push them to a two-month high last week. An attack by Iran-backed Houthi forces on Saudi Arabia and the appointment of hawkish former UN ambassador John Bolton as National Security Advisor to President Trump were not enough to amplify supply disruption fears such that they offset broader weakness across the raw materials space. That seems to reflect easing worries about a trade war between the US and China after Treasury Secretary Mnuchin expressed optimism in reaching a deal without resorting to tit-for-tat protectionism. The world's top-two economies form the backbone of a global supply chain formative for broad-based commodities demand.

4. Australian shares taking cues from Wall Street: The S&P/ASX 200 benchmark shed 0.52 percent in the week's opening session, with Financials names that make up over a third of the index leading the way downward. They shed 0.84 percent. The similarly overrepresented Materials sector commanding almost 18 percent of the average lost 0.34 percent. The drop probably echoed Friday's brutal bloodletting on Wall Street. The subsequent recovery there in Monday's session may likewise echo forward however. Indeed, SPI futures are pointing convincingly higher before Tuesday's opening bell.