Market wrap: Australian stocks are set to open lower after falls in oil and industrial metals and despite a solid rebound on Wall Street from heavy initial losses.
The December SPI futures contract ended the night session 27 points or 0.58% weaker at 4638. The Dow tumbled 150 points in morning trade as Ireland's bailout plan, announced yesterday, underlined the fragility of the banking system and the FBI raided three U.S. hedge funds in connection with a widening insider-trading investigation. However, the major U.S. share indexes reversed course after lunch as traders once again "bought the dip".
The Dow closed just 25 points or 0.22% lower at 11,179, while the broader S&P 500 snapped a three-day winning streak with a loss of 0.16%. The Nasdaq, with minimal exposure to troubles in the financial sector, rallied 0.55%.
Financial stocks bore the brunt of selling in the U.S. after a wave of negative news for the sector. A warning by ratings agency Moody's that it will downgrade Ireland's debt rating by several notches sparked heavy losses among European banks. FBI raids on hedge funds refocused attention on a three-year investigation into insider-trading that threatens to engulf some of the biggest names in U.S. banking. Also undermining sector sentiment was the prospect that U.S. banks may be forced to buy back bad mortgages and the threat that the new "Basel III" financial regulations will require many U.S. institutions to bolster their capital reserves.
Precious metals and the U.S. dollar rallied as investors sought alternatives to equities. The dollar index was recently up 0.2% but well off its overnight high.
Gold and silver benefitted from growing concerns about the potential for other shoes to drop in the European debt crisis. Spot gold was recently $11.70 higher than Friday's New York close at $1,365.80 an ounce. Silver for December delivery rallied 28 cents or 1% to $27.46 an ounce.
Oil tracked equities, falling hard in early trade, but recovering as the U.S. dollar's rally faded. Crude futures were recently down 27 cents or 0.3% at $81.70 a barrel after earlier touching $80.68.
Most industrial metals lost ground as Chinese imports of copper fell to a one-year low. Customs figures showed refined-copper imports eased 30% last month from September. In late trade in London, copper was down 1.4%, lead 2.1%, nickel 1.7%, tin 2.8% and zinc 1.1%. Aluminium rallied 1.1%.
The major European markets opened ahead but faded as news of Moody's downgrade for Ireland eroded optimism about the EU-IMF rescue plan. Britain's FTSE fell 0.91%, Germany's DAX 0.31% and France's CAC 1.07%.
TRADING THEMES TODAY
RISK AVERSION: There has been a subtle change in the mood of the market since QE2. During yesterday's local rally it was striking that the three strongest sectors were telecoms, health and property trusts. All three closed more than 1.2% higher, while the Small Ordinaries rose just 0.6%. That's not what a bull market rally normally looks like. That was just one day's trade, of course, but the recent direction in the U.S. dollar, oil/industrial metals and precious metals leans towards the same themes. There's caution in the market.
ECONOMIC NEWS: A slow day ahead for local news. Nothing major scheduled here and Japan is closed for a public holiday, depriving our market of one of its intraday leads. However, there are several potential market-moving releases due tonight out of the U.S.: preliminary GDP, existing home sales and the minutes from the last Fed meeting, which should explain more of the reasoning behind the controversial QE2.
