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Market wrap:
The share market looks set for another downswing after US stocks declined as the Federal Reserve appeared to back away from a September rate rise and a commodities rout deepened.
The September SPI200 futures contract retreated 48 points or 0.9% to 5305 during volatile trading on Wall Street as European stocks recorded sharp falls, and oil and copper plumbed six-year lows.
US stocks followed Europe and most Asian markets more than 1% lower at the open, briefly returned to break-even following the release of the minutes from the last Fed meeting and then faded once again. The S&P 500 ended the session 17 points or 0.83% in the red after swinging through a 25-point trading range. The Dow gave up 163 points or 0.92% and the Nasdaq 40 points or 0.8%.
“Investors are concerned about China, emerging markets and with one of the biggest daily moves in oil, it is hard to see stocks rise," Brian Fenske, head of sales trading at ITG in the US, told MarketWatch. “Markets interpreted the [Federal Reserve] minutes as more dovish than not, with the odds of a rate hike in September reduced slightly.”
Investors in Europe and the US were unsettled by another wild session in China yesterday, where the Shanghai Composite followed Tuesday's 6.15% plunge by falling as much as 5% before rebounding to a final gain of 1.24% after the People's Bank of China injected funds into the financial system to arrest the decline. The volatility infected other markets, with Japan's Nikkei sliding 1.61%, Hong Kong's Hang Seng 1.31% and key commodities recording fresh multi-year lows. Declines in mining stocks helped steer the Stoxx Europe 600 down 1.76%, Germany's DAX 2.14%, France's CAC 1.75% and Britain's FTSE 1.88%.
"You're seeing a spillover from overseas markets into our markets," Mark Luschini, chief investment strategist at Janney Montgomery Scott in the US, told CNBC.
US stocks temporarily regained their footing after the minutes from the July Fed policy meeting hinted that a rate increase next month was less likely. While analysts were divided in their interpretations, the market odds on a September hike eased from 50% to 38%, according to Bloomberg.
The minutes said most Fed officials "judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point. Participants observed that the labor market had improved notably since early this year, but many saw scope for some further improvement."
The minutes showed officials were concerned about weak inflation and signs of a slowdown in China. Last night's economic news included a July rise in US consumer prices that was smaller than expected. The consumer price index edged up a seasonally-adjusted 0.1%, versus expectations for an increase of 0.2%. Annual core inflation remained at 1.8%, below the Fed's 2% target. Read more here.
The raw materials, energy and industrials sectors were the biggest weight on the S&P 500 as oil and copper led another downleg in commodities, even as the US dollar sagged. The US energy ETF plunged 2.76% after West Texas Intermediate crude oil for delivery in September settled at US$40.80 a barrel, down $1.82 or 4.3%, following news of an unexpected increase in weekly US inventories. The settlement price was the lowest since early March 2009.
Copper closed below US$5,000 a tonne after touching a fresh six-year low as traders shunned any commodity with a strong dependence on Chinese growth. (China consumes 45% of the world's copper.) London copper closed 1% lower at US$4,985 after falling as low as US$4,976. Aluminium gained 0.2%, nickel 0.5%, tin 1.4% and zinc 1.25%. Lead closed flat. US copper for September delivery was recently down 0.6% at US$2.27 a pound.
Rio Tinto skidded 3.18% in US trade and BHP 1.72%. Spot iron ore for import to China yesterday dipped 10 cents to US$55.90 a dry ton.
US gold stocks benefitted from haven demand as the US dollar swung lower to reflect the reduced likelihood that the Fed will hike next month. The NYSE Arca Gold Bugs index advanced 3.48% as gold enjoyed its best session in a week. Gold for December delivery settled $11 or 1% ahead at US$1,127.90 an ounce as the US dollar index slipped 0.58%.
“Growing fears of destabilisation in the world economy have sparked another round of capital outflows from stock markets not only in Asia Pacific markets but also in Europe and even the US, exacerbating seasonal uncertainty,” Colin Cieszynski, chief market strategist at CMC Markets, told MarketWatch. “Because of this, some capital appears to be finding its way back into defensive havens, particularly gold.”
The dollar was this morning buying 73.5 US cents.
TRADING THEMES TODAY
FULL-SPEED REVERSE: This topsy turvy week is turning into a nightmare for trend traders. The XJO has been up, down, turned around and looks set for another sharp reversal after a wild night in the US. American traders didn't know whether to cheer a potential delay in rate increases or flee because it suggests the economy is not strong enough to withstand it. The bears won in the end, but the S&P 500 remains trapped in a narrow range that could still break either way. Back home, we could be looking at a very quick return to the 5300 level. The ASX tends to get used by international investors as a proxy for commodity prices, and the two that most closely reflect global growth - oil and copper - had a grim night. Gold stocks were among the night's few winners.
ECONOMIC NEWS: No significant domestic news scheduled today. Tonight's US highlights include weekly unemployment stats, existing home sales, the Philly Fed Manufacturing Index and a speech by a Fed official.
