Market wrap: Stocks look set for a weak open after China's Monday meltdown sparked sell-offs on overseas equity and resources markets.
China's benchmark stock index, the Shanghai Composite, plunged 6.7% to 2667.74 yesterday, the heaviest fall this year and its lowest finish since May. European markets continued the selling, finishing around 1% lower.
Wall Street plunged at the open but recovered some of its losses before the close. The Dow retreated 0.5%, the S&P 500 lost 0.81% and the Nasdaq was down 0.97%.
American energy and mining stocks were hit by falls in the price of resources. Crude oil futures tumbled nearly 4% to end below $70 a barrel for the first time in two weeks. Oil was recently trading at $69.68. Gold was also dragged lower, touching $945 before recovering to trade at $950.80.
The London Metals Exchange was closed for a public holiday but there was heavy selling elsewhere on fears that the collapse in Chinese equities presaged slowing demand for industrial metals. In New York, copper slumped 4.2%, its heaviest fall in two months. Zinc slumped 2.4% in Shanghai.
Futures traders seem to think our market took some of its medicine yesterday and therefore does not have too far to fall today. With 35 minutes left to trade, the SPI futures index was just 7 points lower at 4464.
TRADING THEMES TODAY
INTEREST RATES: The Reserve Bank is due to announce its interest rate decision at 2.30pm today. Economists expect the rate to stay unchanged but believe a rise is highly likely before the end of the year. The language used in the release will be analysed for clues as to when the rise will come. Rising interest rates are generally negative for stock markets because they raise the cost of doing business.
CHINA: Regional markets and resources are increasingly sensitive to movements on the volatile Shanghai composite which has now given back nearly a quarter of its value since it peaked on August 4. Yesterday's 6.7% plunge on fears about an overhang of new stock issues and concerns over tightening credit will ensure all eyes are on Shanghai today. Track regional markets, including China (SSE = Shanghai Stock Exchange) here: http://liveindices.com/
BOUNCE TRADES: That SPI figure looks optimistic to me. There should be opportunities this morning to pick up resources stocks on retrace. Look for stocks in uptrends that have been sold down for at least two sessions and are trading near support levels.
