Market wrap: An overnight collapse in commodity prices and overseas equities points to heavy losses for the Australian share market at today's opening bell.
Futures traders expect our market to open at its lowest level since early September as sovereign debt worries in Europe and employment woes in the U.S. sparked share market sell-offs on both continents. The March SPI futures contract closed 134 points lower at 4458, suggesting our market will open down around 3% this morning.
The Dow Jones Industrial Average tumbled 268 points or 2.6% to 10,002. The S&P 500 fell even harder, off 3.1%, and the Nasdaq lost 3%. European markets recorded similar losses - London down 2.17%, Frankfurt -2.45% and Paris -2.75%.
The stock market rout began in Europe where the cost of insuring Portuguese debt blew out to an all-time high as investors priced in the danger of a sovereign default. Wall Street opened in the red and accelerated losses into the afternoon after a surprise rise in jobless claims thwarted hopes that the U.S. employment picture was improving. First-time filings for state unemployment benefits hit their highest level since mid-December, stunning economists who had expected a significant drop, and confirming the fragility of last year's economic recovery.
"The message here is that we're not out of the woods," the MD of a U.S. mutual fund told MarketWatch.
Another commentator added, "What bothers people about Europe and about Greece is the fact that these governments globally have been overspending and I think they're worried that Greece is the tip of the iceberg."
The Chicago Board Options Exchange's Volatility Index (VIX), which basically measures investor nervousness, spiked 17% as investors abandoned equities and commodities for the safety of the U.S. dollar. The U.S. dollar index, which measures the greenback against a basket of major currencies, surged 0.7% to a seven-month high.
A broad sell-off in commodities dragged down oil, precious metals and industrial metals. The spot gold price plunged more than 4% to $1,063 an ounce, near its lowest level since October. Platinum was down around 4%. Crude oil futures skidded 5.1% to trade recently at $73.03 a barrel, eradicating all of this week's recovery.
Several industrial metals plumbed multi-month lows. In London, copper slumped 3.2%, aluminium 2.1%, lead 2.5%, nickel 3.3%, tin 4.2% and zinc 3.3%.
TRADING THEMES TODAY
TIN HATS: A devastating night on equity and commodity markets. It's going to be messy here, with support levels splintering like matchwood. For the brave, there will be intraday bounce-trade opportunities in oversold shares but it will be a hazardous game in these conditions. If you're not game to trade, consider watching how the market moves today and think about how you can use that to your advantage in the future. There are likely to be more days like this ahead and full-time traders need to have plans for all market conditions (or do so well in the good times that they can afford to sit back on days like this!)
ECONOMIC NEWS: The Australian Industry Group releases its Construction Index at 9.30 am and the RBA releases its monetary policy statement at 11.30 am. Tonight in the U.S.: more unemployment data and December consumer credit numbers.
