Australia: Stocks rise before rate decision; crude extends rally

[WELLINGTON] Australian stocks and bonds climbed before the central bank reviews interest rates, while Japanese index futures advanced as crude oil extended a rally that helped fuel a rebound in US equities.

The S&P/ASX 200 Index added 0.6 per cent by 10.50am in Sydney, rising for a ninth day, set for its longest rally in 18 months. Ten-year Australian bond yields lost two basis points. Nikkei 225 Stock Average futures were bid up 0.6 per cent in Osaka, while contracts on the Standard & Poor's 500 Index fell 0.1 per cent after the gauge's 1.3 percent increase following its worst month in a year. US oil rose a fourth day, adding 1.2 per cent to US$50.18 a barrel. Indian rupee forwards climbed.

While most economists predict the Reserve Bank of Australia will leave key borrowing costs at a record-low 2.5 per cent today, swaps traders see 63 per cent odds of a cut amid a wave of global monetary easing. India also reviews rates after a surprise reduction last month.

Oil is extending its rebound from an almost six-year low, amid speculation some investors are closing out bets on declines as drillers shut down rigs.

"While the market isn't fully priced for a cut, the bigger surprise would be no move as we've seen very significant falls in Australian bond yields," Steven Milch, chief economist at Suncorp Wealth Management in Sydney, said by phone. "Either way you'll get some market reaction."

Yields on Australian government debt due in a decade dropped to 2.43 per cent, after posting successive monthly declines since October.

Three-year rates slipped one basis point, or 0.01 percentage point, to 1.95 per cent after touching a record-low 1.885 percent on Monday.

PLAYERS SPLIT

The Aussie dollar was little changed at 78 US cents after gaining 0.5 per cent on Monday. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was steady after slipping 0.2 per cent on Monday, only its second decline in 12 days.

Of 29 economists polled by Bloomberg, seven predict the RBA will reduce its cash rate target by 25 basis points to 2.25 per cent today, while the rest see the rate unchanged. Prospects of an imminent rate cut have fueled gains in the stock index, with the S&P/ASX 200 up 4.6 per cent this year, the best performance among developed markets in Asia tracked by Bloomberg.

Nikkei 225 futures were bid at 17,630 in the Osaka pre- market, from 17,530 at their close in Japan yesterday. Contracts traded on the Chicago Mercantile Exchange added 0.1 per cent to 17,650, after gaining 0.8 per cent on Monday.

Futures on the SGX FTSE China A50 Index were up 0.7 per cent in most recent trading after signs of contraction in China's manufacturing sector sent the Shanghai Composite Index down 2.6 per cent on Monday to a two-week low. The Bloomberg China-US Equity Index rose 1.5 per cent in New York.

The NZX 50 Index in Wellington advanced 0.2 per cent, as New Zealand Oil & Gas Ltd. gained 0.8 per cent. Markets in Malaysia and Sri Lanka are closed Tuesday for holidays.

One-month non-deliverable forwards on the rupee strengthened 0.3 per cent to 61.99 per dollar in early trading. The central bank is projected to keep the repurchase rate at 7.75 per cent after last month's 25 basis-point cut, according to economists surveyed by Bloomberg.

In the U.S. on Monday, the Institute for Supply Management's manufacturing index dropped to 53.5 from 55.1 in December. The plunge in oil prices limits sales for manufacturers such as Caterpillar Inc., while slower growth from Europe to China and the strengthening dollar represent another hurdle for American exports.

US household purchases declined 0.3 per cent in December, the biggest drop since September 2009, as households took a breather following a surge in buying over the previous two months. Incomes and the saving rate rose.

Data last week showed the US economy expanded at a slower pace than forecast in the fourth quarter as cooling business investment, a slump in government outlays and a widening trade gap took some of the luster off the biggest gain in consumer spending in almost nine years.

Gold was little changed on Tuesday at US$1,274.78 an ounce on the spot market after slipping 0.7 per cent on Monday. Yields on 10-year US Treasuries rose two basis points from their lowest level since 2013, to 1.67 per cent in New York.

BLOOMBERG