Market wrap: Local stock indexes will open firmly in the red this morning after a late sell-off on Wall Street.
US stocks were ahead in mid-afternoon and rallied briefly after the Federal Reserve left interest rates unchanged, but there was heavy selling in the final hour of trade. The Dow closed 81 points or 0.83% lower, the S&P 500 was down 1.01% and the Nasdaq lost 0.69%.
The late declines came despite an optimistic statement from the Fed. At the conclusion of its two-day policy meeting, the FOMC said "economic activity has picked up following its severe downturn." The committee voted 10-0 to keep the target federal-funds rate for interbank lending at zero to 0.25%.
Traders said the sell-off was caused by fears that the Fed was near the end of its efforts to lift the economy out of recession. “What the Fed basically signalled in this one is that their foot, while still on the pedal, is not floored anymore,” said a chief investment officer quoted on Bloomberg. “They’re not saying we’re going to do everything we possibly can to promote this economic recovery.”
Most US sectors finished underwater. Banks lost 2%, REITs 3.91%, oilers 2.05%, precious metals miners 3.1%, airlines 4.32%, telecoms 1.44%, biotechs 1.22% and industrials 1.28%.
European markets gave up early gains to finish narrowly red. The FTSE lost 0.06%, the CAC 0.05% and the DAX 0.13%.
Crude oil futures were sunk by fresh evidence of rising inventories in the US. Crude futures were recently down 3.93% at $68.16 after crude supplies rose 2.8 million barrels in the week ended September 18, suggesting demand continues to lag supply. Gold futures were initially boosted by selling elsewhere but have since sagged. The spot price was recently $1008.50 per ounce, down around $6 from yesterday.
Base metals were mixed but mostly weaker. Nickel eked out a small gain but copper, aluminium, zinc, tin and lead all retreated.
Futures traders expect our market to follow the US south at the opening bell. With 20 minutes left to trade, the SPI futures index was down 29 points at 4718.
TRADING THEMES TODAY
CAUTION: Stocks plunged in a straight line in the US after the Fed's interest rate statement, suggesting there may be more selling to come this week as traders factor in a gradual withdrawal of central government support. If anything, our futures figure looks optimistic to me. Yesterday's big surge here places our market significantly out of synch with other markets and these gaps tend to close fairly quickly.
BOUNCE TRADES: When the futures are red and there's no obvious sector-lead from overseas, I set price alerts at key support levels and wait for the market come to me. I look to buy stocks in uptrends that have been retracing for at least one day, ideally two, and hit a support level in the first half-hour of trade. Keep stop-losses tight and be ready to lock in profits quickly.
ECONOMIC NEWS: The Reserve Bank issues its half-yearly "Financial Stability Review" today at 11.30 am. The review assesses the current state of the financial system and discusses risks to financial stability. In the US tonight, investors will look at the August existing home sales data for signs of an upturn in the housing market.
