Market wrap: Stocks will open in the red this morning after a surging U.S. dollar crunched commodity prices and prompted a flight to safety.
The local SPI futures index closed 32 points lower at 4626 as traders factored in falls on Wall Street after weak U.S. jobs numbers, a credit downgrade for Greece and a soft outlook from U.S. bellwether FedEx. The Dow closed 1.28% lower, the S&P 500 lost 1.18% and the Nasdaq 1.22%.
Fears of a major sovereign debt default heightened when Standards & Poor cut Greece's credit rating to triple-B-plus from single-A-minus. Investors were alarmed at the speed of the cut after the agency put Greece on watch for a possible downgrade less than two weeks ago. Credit-default swaps on Greek government debt - basically bets that Greece will default - have ballooned.
FedEx shares plunged more than 5% after the company revealed a 30% drop in second quarter profits and gave a cautious outlook for its third quarter. Traders interpreted the result as confirmation that the economy faces a long, slow recovery.
Also undermining sentiment was a rise in unemployment benefit claims. The Labor Department reported initial claims for jobless benefits rose 7,000 last week. Economists had expected claims to fall by 9,000.
The news wasn't all bad: the index of leading economic indicators in the U.S. rose for the eighth straight month and regional manufacturers reported rising activity. But the negatives outweighed the positives.
The U.S. dollar surged to three-month highs and investors sold the euro, precious metals and base metals. The U.S. dollar index, which measures the greenback against a basket of major currencies, was recently up 0.9%.
An index of U.S. precious metals miners slumped 5.15% after the price of gold slipped to its lowest level in a month. The spot gold price recently traded at $1,097.90 an ounce, down more than 3% for the session.
The U.S. oil and gas sectors were also under pressure, despite a late recovery in crude and a 5% surge for natural gas futures. Crude oil futures were recently trading little changed at $72.68 a barrel, up 0.03%. The Amex Oil Index of US oil shares slipped 1.58%.
European markets were sold off on concerns over Greece's deteriorating debt problems. Britains FTSE slid 1.93%, Germanys DAX 1% and Frances CAC 1.16%.
Base metals lost ground in London. Copper fell 2.4%, aluminium 2.4%, lead 2.1%, nickel 2.3% and zinc 1.7%.
TRADING THEMES TODAY
SURGING US DOLLAR: The breakout in the US dollar is now well and truly confirmed. It may be temporary but for now it will pressure our resources sector especially.
BOUNCE TRADES: As it's Friday and traders are closing down for the holiday season, our market may be weaker than usual today, so I'll stick to quick intraday scalps. The moment of maximum opportunity with these normally lies somewhere between 10.10 and 10.30 am as any early panic abates and more measured traders step in to soak up the selling. Look for shares that have been sold off for a few days and fall quickly towards a major support level this morning.
ECONOMIC NEWS: Nothing major scheduled here today or tonight in the US.
