A volatile night on world markets has Australian shares pointing sharply lower after the US Federal Reserve signalled a likely slowdown in its stimulus program this year.
The September SPI 200 futures contract skidded 41 points or 0.8% to 5038 as US stocks and key commodities settled lower following wild gyrations in the aftermath of the release of the minutes from the last Fed policy meeting.
The S&P 500 plunged when the minutes hit traders' screens, rallied briefly and then fell away again to a final loss of nine points or 0.57%. The close was the benchmark index's weakest in six weeks. The Dow slumped 105 points or 0.7% for a sixth straight decline, the blue-chip measure's longest losing streak in 13 months. The Nasdaq lost 0.38%.
The market reaction to the Fed minutes indicated confusion over whether the odds had increased or reduced that the central bank will start to reduce its US$85 billion a month bond-buying program next month. While the minutes showed board members disagreed on the timing of the long-awaited "taper", officials were "broadly comfortable" with reducing the pace of asset buying before year-end, according to MarketWatch.
"The July FOMC minutes... show a Fed that did not wish to alter the message it gave following the June FOMC meeting and the semi-annual statement and did not wish to alter market expectations," the global head of foreign exchange strategy at Deutsche Bank in the US told Reuters. "That does not smack of a Fed going out of its way to fight the back-up in bond yields."
"I think it's likely September, but we get another jobs report between now and that Fed meeting, so that may be a determinant," the chief investment strategist at Janney Montgomery Scott in the US told MarketWatch.
The Australian dollar plunged below 90 US cents as the greenback was boosted by the prospect of an end to the Fed's inflationary stimulus program. The Aussie was lately buying 89.75 US cents, down more than a cent and a half.
Resource stocks were among the sectors hit hardest by the late swoon. Technology and health care performed best. BHP dropped 3.26% and Rio Tinto 2.81%. The Philadelphia index of precious metals miners sagged 4.04% as gold and silver turned lower. Gold for December delivery was lately off $4.50 or 0.3% at US$1,368.10 an ounce as a rallying greenback made alternative stores of wealth less attractive. September silver was down 22 cents or 1% at US$22.85 an ounce.
Oil fell for a third session, extending its loss this week beyond 3%. West Texas Intermediate crude oil for October delivery was recently down $1.26 or 1.2% at US$103.85 a barrel.
Industrial metals retreated ahead of the Fed release and today's Chinese manufacturing update. US copper for September delivery was recently off less than three cents or 0.7% at US$3.31 a pound. In London, copper and tin both fell 1.1%. Aluminium, lead, nickel and zinc also retreated.
Iron ore weakened yesterday. The spot price for import to China fell $1.20 or 1.1% to US$137.80 per dry metric tonne.
European markets closed just as Wall Street began its first dip. Germany's DAX lost 0.18%, France's CAC 0.35% and Britain's FTSE 0.97%.
TRADING THEMES TODAY
FED + CHINA + EARNINGS = ???: You would be brave to wager on where the market will close tonight as it adjusts to myriad different influences. Confusion reigned in the US after the release of the Fed minutes, with each media organisation casting a different interpretation on the story. Ultimately the market reaction was negative, and that's what matters. US futures will be closely tracked today to see if the mood improves or darkens. The dollar tanked with commodity prices and our big two miners but the gloom could lift quickly if the August manufacturing report from China at 11.45am EST beats expectations. If that's not enough to keep you busy, it's another huge day for full-year earnings reports. Among those due to report today are: ASX, AWC, BXB, CAB, EGP, ENV, FMG, FXJ, IAG, MOC, ORG, PBG, PNA, SFG, SHV, SVW, SYD, TOL, TTS (source: Fairfax). Our index futures deteriorated as the night session wound down. Be careful out there.
ECONOMIC NEWS: The Conference Board releases its monthly leading index at 10am EST, but the day's big event is the 11.45am release of HSBC's flash Chinese manufacturing PMI for August. The consensus is that the index will improve modestly to 48.3 from 47.7 in July, according to Forex Factory. Europe releases manufacturing and services data tonight. Highlights in the US include weekly jobless claims, flash manufacturing, house price index and a leading index.
