Market wrap: A string of earnings misses and disappointing economic news combined with pre-European summit profit-taking to send US stocks and Australian index futures lower overnight.
The December SPI futures contract ended the night session 37 points or 0.9% down at 4179 as futures traders bet that the ASX pre-empted some of the overnight weakness during yesterday's pullback.
US stocks ended a three-day rally as some high-profile companies delivered earnings shocks, consumer confidence dropped to its lowest level in more than two years and a meeting of European finance ministers tonight was cancelled. The Dow faded in the last hour to finish 207 points or 1.74% weaker. The S&P 500 lost 2%, with all 10 sectors underwater, led by financials. The Nasdaq lost 2.26%.
"Given the run the market has had in the last three weeks, it should be no surprise that this morning's hit erased [Monday's] gains in about 30 minutes," Elliot Spar, market strategist at Stifel Nicolaus, told MarketWatch. "The market's resiliency will be tested [tonight] as it deals with the outcome of the European summit statement."
Fears that European officials will tonight fail to deliver a comprehensive plan to contain the region's debt crisis were heightened by news that a planned meeting of finance ministers will not proceed. A summit of European Union heads of state to announce measures to tackle the crisis is expected to go ahead. The news clipped an initial rally in Europe, with Britain's FTSE finishing 0.41% in the red, Germany's DAX losing 0.14% and France's CAC 1.43%.
A mostly positive third-quarter earnings season in the US had a rare off-night as Netflix, UPS, Dow component 3M and engine-maker Cummins all disappointed. The bearish mood was compounded by news that consumer confidence sagged this month to its weakest level since March 2009. City home prices declined more than expected, sending an index of house builders more than 3% as companies most exposed to the US economy fell more than 2%.
Precious metals surged as European jitters encouraged a return of safe-haven buying. Gold for December delivery was recently up $49.80 or 3% at US$1,702.50 an ounce. December silver rallied $1.62 or 5.1% to US$33.27 an ounce.
"Gold has edged higher as concerns about the European debt crisis and the risk of contagion are leading to demand for gold for wealth-preservation purposes," analysts at GoldCore wrote in a note quoted on MarketWatch. "The likelihood of the euro-zone sorting out their intractable problems has come into question again as ... Europe's largest banks have clashed with politicians about the size of losses they will have to take on their Greek debt."
Oil coasted to a 12-week high on momentum following yesterday's technical breakout of its recent trading range. Crude for December delivery was lately ahead $1.58 or 1.7% at US$92.85 a barrel after earlier running as high as $94.65.
Industrial metals pared two days of strong gains in a general retreat from risk. In London, copper eased 1.2%, aluminium 0.3%, lead 2.75%, nickel 1.2%, tin 2% and zinc 1.35%. US copper was recently off 1.3%.
TRADING THEMES TODAY
LOCKING IN PROFITS: Some profit-taking in the US was predictable after a three-day rally, but that nasty finish near the day's lows ensures that our market likely has further to fall today. The postponement of tonight's meeting of euro-zone finance ministers raises further doubts over the region's ability to meet expectations for tonight's summit. To make matters worse, shares in Amazon have just plunged 15% after it reported a big slump in profits and outlook just after Wall Street closed for regular trade this morning. Financials were among the biggest losers overnight in the US and are likely to lead the way south here. Gold/silver miners and oilers appear most likely to outperform.
INFLATION AND INTEREST RATES: It's a big day for rate-watchers after the Reserve Bank flagged earlier this month that this morning's consumer inflation report will have a big say in whether interest rate cuts are on the cards. The quarterly consumer price index is due at 11.30 am AEST, with a consensus forecast of growth at around 0.6% for the raw data and 0.7% for the trimmed mean data. Anything lower will elevate hopes for interest rate cuts, which are broadly supportive for stocks, especially consumer companies.
ECONOMIC NEWS: Quarterly consumer inflation figures are due at 11.30 am AEST (see above). Tonight's overseas interest centres very much on the European Economic Summit, but the US has durable goods and core durable goods, new home sales and crude oil inventories.
