Market wrap: Futures traders expect a positive start to local trade despite a mixed night on world markets as enthusiasm waned for a European rescue plan for debt-strapped nations.
With 15 minutes left to trade, the local June SPI futures contract was ahead 20 points at 4577, suggesting the Australian share market should recover nearly half of yesterday's losses at today's opening bell.
European and U.S. equities ended a choppy session mostly lower as traders factored in the prospect of slower world growth as cash-strapped European nations slash spending. Also weighing on sentiment were fears of further monetary tightening in China after yesterday's economic data confirmed rising inflation and property prices.
"China is at risk of overheating, with spot fires breaking out in various parts of the economy, most notably the property market and bank lending," Brian Jackson, an analyst with RBC Capital Markets told MarketWatch.
The Dow Jones Industrial Average, up nearly 90 points at lunchtime, faded to close 37 points or 0.34% lower. The S&P 500 fell by the same percentage but the Nasdaq finished 0.03% higher.
Earlier, most European markets fell back as some of Monday's huge relief rally unwound. Britain's FTSE slipped 1%, France's CAC 0.73%, the Greek ASE Composite 2.5%, the Portugal PSI 20 2.2% and the Spanish Ibex 35 3.4%. Germany's DAX bucked the trend, rising 0.33%.
"We believe that the current situation raises serious questions over the outlook for recovery in South Europe in particular, but also the euro zone," said bank analysts at Macquarie quoted on MarketWatch. "We believe consensus earnings may have to come down."
A recovery in the U.S. dollar pressured commodity prices but gold broke to a new all-time high as "safe-haven" assets continued to benefit from the uncertain outlook for the global economy. The spot gold price was recently up $29.80 or 2.9% on Monday's New York close at $1,232.50 an ounce. Silver also made huge advances.
"The rise reflects doubts about whether fringe euro-zone economies can reduce debt as well as lingering concerns about a possible contagion," said Ross Norman, a gold trader at TheBullionDesk.com.
News that OPEC has raised its estimate for global oil demand for the year failed to keep the oil price in positive territory. Crude futures were recently down 89 cents or 1.16% for the session at $75.91 a barrel. OPEC raised its expectations for global oil demand from 900,000 barrels a day to 950,000 barrels a day.
Industrial metals were hurt by the rising greenback and the prospect of slowing demand in Europe and China. In London, copper slid 1.2%, aluminium 2%, nickel 1.6%, tin 1.7% and zinc 3.5%. Lead edged 0.15% higher.
TRADING THEMES TODAY
GOLD: Monday's wobble in the price of gold turned out to be no more than that as investors took a more sober look at the prospects for world growth overnight and voted for the security of precious metals. Gold operates as a hedge against uncertainty and we're sailing into uncharted waters. Gold climbed nearly 3% overnight to a new all-time high. The Philadelphia Gold Silver Index of U.S. precious metals miners surged 4.3% to a five-month high, pointing to strong gains for local miners this morning.
CHINA: Weighing on our mining sector today will be yesterday's strong Chinese economic data, which elevated the odds on further cooling measures in the biggest consumer of our raw materials. Rising inflation and signs of a property bubble will likely force the central government to raise interest rates. That has negative implications for demand for resources, which in turn will affect commodity prices and ultimately the share prices of Australian miners. "The People's Bank of China will hike interest rates, the question is when," an analyst at Huatai Securities told MarketWatch. "The stock market is quite weak and I believe it will remain that way so long as investors anticipate a rate hike."
ECONOMIC NEWS: Monthly home loans are due at 11.30 am. Recent housing data has shown a growing gap between prices and loans - something has to give. European GDP figures will attract more interest than usual tonight. In the U.S. tonight: the trade balance, Federal budget balance and crude oil inventories.
