The share market faces another downleg after disappointing US corporate earnings and ratings downgrades for Germany and China dragged on stocks and commodities overnight.
The June SPI 200 futures contract slipped 33 points or 0.6% to 4969 as BHP and Rio both fell more than 3% and oil and metals resumed their recent downtrends.
US stocks followed European markets lower as weak earnings added to pressure from rumours that Germany faced a downgrade to its triple-A credit rating. Egan-Jones later announced it was cutting Germany to A from A+ because of its exposure to the euro-zone debt crisis and European banking system. The S&P 500 dropped 23 points or 1.43%, erasing Tuesday's rally. The Dow lost 138 points or 0.93%.
"We're at a point where it's been exceedingly positive and it's now swinging back the other way, and that's a treacherous time for markets," the chief investment strategist at the private-banking unit of KeyCorp in the US told Bloomberg. "People are nervous."
The Nasdaq plunged 1.83% as Apple dropped below US$400 for the first time since late 2011 and earnings from Intel and Yahoo! failed to inspire tech traders. Apple dived 5.5% as a key supplier downgraded earnings guidance and analysts predicted a lacklustre profit report from the iPhone maker next week. Bank of America lost 4.72% after it continued this season's run of disappointments from the financials sector.
All 10 S&P industry groups went backwards overnight, but cyclical stocks once again bore the brunt of the selling. The Morgan Stanley Cyclical Index fell 1.9% and Russell 2000 index of small caps 1.79%.
European markets swooned amid speculation about Germany's credit rating and after the president of Germany's central bank warned it could take the continent a decade to recover from its current economic malaise. Germany's DAX lost 2.34%, France's CAC 2.35% and Britain's FTSE 0.96%.
Copper plumbed its lowest level in a year and a half after yesterday's IMF global growth downgrade and a ratings cut for China. Moody's reduced its Chinese government rating cut to 'stable' from 'positive'. US copper for May delivery was recently down 13 cents or 3.9% at US$3.18 a pound. In London, copper lost 2.8%, aluminium 0.6%, lead 2.25%, nickel 1.8%, tin 2.9% and zinc 1.2%.
Gold failed to extend yesterday's tepid rebound during a strong night for the US dollar. Silver hit its lowest level in a year and a half. Gold for June delivery was lately down $11.40 or 0.8% at US$1,376 an ounce. May silver was off 34 cents or 1.4% at US$23.29 an ounce.
Oil fell to mid-December levels after the weekly US inventory report offered little evidence of improving demand. West Texas intermediate crude for May delivery was recently down $2.27 or 2.6% at US$86.45 a barrel.
TRADING THEMES TODAY
RISING VOLATILITY: This week's wild ride looks set to continue today as the great retreat from commodities ground on overnight. Dr Copper is telling us all is not well with the world and he usually rewards those who take his advice. Some of the air is coming out of the inflated valuations of US stocks in the light of recent economic data and early Q1 earnings reports. Wall Street offered no obvious hiding places last night, with bank shares falling 2%, gold/silver miners 5.4% and oil services 3.2%. Even defensive telecoms lost 1.9% on the Nasdaq and biotechs 0.4%. Gold seems to be building a base around these levels, but I wouldn't bet the house on it - buyers have been unable to sustain a serious rebound. Once again, today may reward judicious bargain-hunting but I'll continue to clear the books before the close each day until markets settle down.
ECONOMIC NEWS: Quarterly business confidence figures are due at 11.30am EST. Aside from earnings, tonight's highlights in the US are weekly jobless claims, the Philly Fed Manufacturing Index, a leading index and natural gas storage.
