AUSTRALIAN shares are expected to jump more than 1 per cent this morning after US and European markets surged on Friday on news of surprise jobs growth in the US and after investors took a more positive view of the efforts of the European Central Bank to control the eurozone crisis.
Economists were surprised by the strength of US payrolls data, released last Friday, which showed 163,000 jobs were created in July, far more than the 100,000 expected.
It was the greatest number of jobs added in any month since February, and investors reacted by pushing US stocks to a three-month high, with the Dow Jones Industrial Average jumping 221 points, or 1.7 per cent, to 13,101, before closing the day slightly below that, on 13,096.17.
Economists said it was good news for the world's biggest economy, which has been struggling for months with weak economic activity, though it was not enough to prevent the US unemployment rate creeping up from 8.2 to 8.3 per cent.
''It's a promising sign that the US isn't going to see a double-dip downturn. It certainly suggests that the US economy is still growing, which is pretty positive,'' HSBC Australia chief economist Paul Bloxham said.
''[But] keep in mind that the US has to create 180,000-odd jobs a month to put sustained downward pressure on the unemployment rate, so it's not quite there yet.''
European markets rallied strongly on Friday after investors reassessed the ECB's bond-buying plans, announced at its policy meeting last Thursday.
After initially being disappointed when ECB president Mario Draghi failed to provide full details of the program, which is aimed at easing the eurozone's debt crisis, markets surged to life on Friday with Italian (up 6 per cent), German (up 3.9 per cent), European (up 4.8 per cent), and London (2.2 per cent) bourses rallying strongly.
Those gains are expected to feed through to the local market today, with the futures market yesterday suggesting a rise of 58 points, or 1.4 per cent, for Australian shares.
Locally, all eyes will be on the Reserve Bank board meeting tomorrow, when the overnight cash rate is expected to remain at 3.5 per cent.
On Thursday, the Bureau of Statistics releases labour force figures for July, where the market is forecasting an increase of 10,000 in total employment, while unemployment is expected to rise to 5.3 per cent.
Profit reporting season begins this week, with miner Rio Tinto releasing its first-half financial results on Wednesday, along with Harvey Norman, which releases its quarterly sales results.
On Thursday, Tabcorp, News Corp and Telstra release their full-year results.