Market wrap: Another weak start for Australian shares lies ahead after fears of European debt contagion caused further falls in commodity prices and overseas equities.
With 15 minutes left to trade, the local June SPI futures contract was down 52 points at 4639 after the euro hit a 14-month low and a surging U.S. dollar wreaked havoc on oil and industrial metals prices.
European markets thudded lower and Wall Street swung in and out of positive territory before closing with losses for a second day. The S&P 500 lost 0.66%, the Dow 60 points or 0.55% and the Nasdaq 0.91%.
Events in Europe continued to cast a shadow over global trade. European Central Bank member Axel Weber said there was a danger of "grave contagion effects" from the Greek debt crisis. In Athens, three people were killed during violent protests against the government's proposed austerity plan.
Meanwhile, ratings agency Moody's warned it may slash Portugal's debt rating and U.S. market commentators predicted that several troubled European nations may have to restructure debt. The cost of insuring European bank debt from default rose to the highest level in a year.
"The reason we have to worry is, let's face it, this is a global environment," a U.S. director of investment strategy told Bloomberg. "The primary concern is the contagion risk associated with Greece and some of the other problematic nations in Europe and the follow-on effects on long-term economic growth. We may be in for more of a rough and volatile period."
U.S. investors were briefly cheered by further evidence of improvement in the domestic economy. A private jobs report showed private employers added 32,000 jobs last month and unexpectedly revised March data to a rise. Growth in the service sector was steady at 55.4% in April - readings over 50% indicate a majority of firms believe business is improving.
The VIX or "volatility index" climbed for a second day, hitting its highest intraday level in three months. The index rose 9.6% to 26.13.
The U.S. dollar index, which measures the greenback against six major currencies, rallied nearly 1% to a 12-month high. In recent months, a rising U.S. dollar has generally translated into lower commodity and equity prices.
Crude oil fell heavily for a second day after a bigger-than-expected rise in U.S. inventories. Crude futures were recently $3.11 or 3.8% lower at $79.63 a barrel, near their lowest level since mid-March.
Industrial metals hit multi-month lows, with nickel plunging 11% in intraday trade to its lowest level since February. "Risk aversion is building, I am now convinced this is a real correction, rather than what we saw in February," a Deutsche Bank analyst told Reuters. "Participation in industrial metals by hedge funds and investors is likely to decline."
In London, copper was down 1.1%, aluminium 3%, lead 4.4%, nickel 9.5%, tin 1.5% and zinc 1.5%.
Gold slid in early trade but recovered to edge higher. The spot gold price was recently up $3.10 from Tuesday's New York close at $1,175.30 an ounce.
European markets continued to tumble. Greece's main index fell 3.9%, Spain 2.9% and Portugal 1.5%. Britain's FTSE slipped 1.28%, Germany's DAX 0.81% and France's CAC 1.44%.
TRADING THEMES TODAY
GROUNDHOG DAY: Another day, another overnight dump. There were signs that the selling is slowing in the U.S. but Europe and commodity markets remain panicky. Our futures were off more than 70 points an hour ago but were improving into the close, suggesting some hope for the bulls. I'll aim to trade the same as yesterday, looking to catch bounces in badly-oversold shares opening at big discounts near support levels.
RETAIL SALES: The performance of our retailers over the last few months has been troubling. Share prices are mostly in decline and weak outlooks over the last week from Woolworths, Fantastic Holdings and Clive Peeters suggest interest rate rises are biting. March sales figures are released at 11.30 am today.
ECONOMIC NEWS: Local March retail sales figures and trade balance data are released at 11.30 am. Tonight inthe U.S.: unemployment claims, quarterly non-farm productivity, quarterly labour costs, natural gas storage and public appearances by Fed chairman Bernanke and Treasury Secretary Geithner.
