Market wrap: Local shares are set to start February at their lowest level since early November after Wall Streets worst monthly performance in a year.
Futures traders expect our market to open 47 points lower than Fridays close as a charging U.S. dollar continues to erode commodity prices. The March SPI futures contract closed at 4499 after further falls in U.S. equities, oil, gold and industrial metals on Friday.
The benchmark S&P 500 sank 0.98% on Friday to complete a 3.7% fall for January, the indexs worst monthly decline since the raging bear market last February. The Dow Jones slipped 0.52% and 3.5% for the month, while the Nasdaq was hit hardest, down 1.45% on Friday and 5.4% for January.
Fridays falls came despite strong fourth-quarter economic growth, improving consumer sentiment and better-than-expected earnings from Microsoft, Amazon and Mattel. Analysts said investors continued to fret about sovereign debt risks in Europe, despite reassurances from European Union officials that none of the ailing PIGS quartet - Portugal, Ireland, Greece and Spain will default.
The U.S. economy grew at the fastest pace in six years last quarter. GDP increased at a seasonally adjusted 5.7% in the December quarter, but consumer spending and business investment remained lukewarm. In other economic news, consumer sentiment rose to its highest level in two years. Microsoft, Amazon and Mattel all delivered better earnings than analysts expected but all finished the day lower than they started it.
"Last year, good news was rewarded and bad news was largely shrugged off," a U.S. chief investment officer told MarketWatch. "A lot of investors had priced in a nice recovery, they priced in the fact that corporate earnings were going to be better than expected, and the market's become a lot more discriminating."
The strong GDP figures and rising consumer confidence drove the U.S. dollar to a six-month high. The dollar index, which measures the greenback against six major currencies, surged 0.73% to 79.48 and sent most hard commodity prices lower.
The spot gold price slid to a two-month low, ending the session at $1,079.70 an ounce, down $5.70 or 0.5%. Crude oil futures fell 1.3% to $72.69 a barrel, close to their lowest level since mid-December.
With the exception of nickel, industrial metals continued the two-week freefall that began with Chinese attempts to rein in the Asian giants runaway economy. In London, copper fell 2.2%, aluminium 1.9%, lead 2.2%, tin 4% and zinc 2.7%. Nickel rose 0.3% on concerns over contract talks at Xstratas Canadian operations.
The major European markets rallied on early strength in the U.S. after the GDP data, strong earnings results and hopes of a turnaround in Greece. Britains FTSE added 0.83%, Germanys DAX 1.24% and Frances CAC 1.37%.
TRADING THEMES THIS WEEK
DEFENSIVE TRADING: Sentiment in the U.S. seems to have reached a tipping point where every silver lining has a cloud and investors can find a downside to every piece of good news. That has made for a tough few weeks and theres no obvious light at the end of the tunnel yet. Were suddenly back in a bear market and need to change tactics to suit the new reality. In my case that means trimming position sizes, reducing profit expectations, largely eliminating overnight holds, cutting losers fast, switching from small caps to the increasingly volatile mid-caps and concentrating on quick intra-day scalps. Its not lucrative or glamorous but it got me through the GFC and will do until the market stabilises.
SLIDING RESOURCE PRICES: The toxic combination of a surging U.S. dollar, souring market sentiment and fears about Chinese growth has driven many resource prices to multi-month lows. Theres no evidence yet of a bottom in oil, gold or base metals, so be very wary of your exposure here. Resource stocks are providing good intraday bounce trading opportunities at support levels but many medium-term supports crumbled last week (BHP, RIO, WSA, MBN, etc) so its important to stay nimble.
RATE RISE: High probability of another interest rate rise here tomorrow. Good for the Aussie dollar, bad for most equities.
ECONOMIC NEWS: A busy week starts with the ABSs House Price Index at 11.30 am today, plus ANZs January job ads, a measure of the local employment outlook. The U.S. calendar starts tonight with a slew of data the manufacturing purchasing manager index, manufacturing prices, construction spending and personal consumption expenditures, spending and income.
