Market wrap: The Australian stock market is facing its heaviest one-day fall since June after a grim end to last week on Wall Street.
Futures traders expect our market to open 118 points lower today, which would drag indexes to their lowest level in seven weeks. The SPI futures index closed at 4506.
Wall Street's brief euphoria over Thursday's GDP figures evaporated after a drop in consumer spending and weak home sales. Analysts said the soft data compounded fears that the long stock rally since March has outpaced the prospects for global economic recovery.
The Dow Jones Industrial Average responded with its biggest single-day fall since May, tumbling 250 points or 2.51%. The broader S&P 500 retreated 2.81% and the Nasdaq lost 1.5%. Major European markets also tumbled. Britain's FTSE declined 1.81% and Germany's DAX 3.09%.
Commodity prices, which rose sharply on Thursday, were whacked lower. Crude oil futures dropped 3.59% to $76.99 a barrel. Gold futures initially sold off but the spot price recovered to close at $1,044.70, just $1.10 off Thursday's price.
Base metals unwound most of Thursday's gains. In London, copper fell $184.50 to $6,480 a tonne as stockpiles continue to rise. Aluminum closed at $1,910, down from $1,955, zinc ended at $2,160, down from $2,265, lead ended at $2,305, down from $2,365, tin ended at $14,700, down from $15,000 and nickel closed at $18,250, down from $18,690.
"The market is clearly confused," said an analyst at Deutsche Bank quoted on Reuters. "You are getting good news followed by bad news, followed by mediocre news. So, directionally, it's challenging to arrive at any kind of conviction."
TRADING THEMES THIS WEEK
VOLATILITY: Wall Street's "fear gauge" surged on Friday to a near four-month high. The CBOE's Volatility Index (or VIX) surged 24% to its highest closing level since July 8. That suggests we're in for a rough ride this week, so fasten your seat belts. If you haven't reduced your holdings, it's time to think hard about it. But it's not all bad for traders because volatility = opportunity. Momentum trades will be more scarce and less reliable but there will be other opportunities.
BOUNCE TRADES: This morning's bloody open will see the majority of stocks open lower. I'll look for opportunity where panic selling takes hold, buying in the first hour and offloading later in the day as emotions settle and rationality slowly returns. Look to buy near support levels.
ECONOMIC NEWS: It's busy locally today, with manufacturing figures due at 9.30 am, an inflation gauge at 10.30 am and the house price index at 11.30 am. The usual slew of data in the US this week is topped by a mid-week Federal Reserve meeting and Friday's monthly jobs report. Tonight: manufacturing business conditions index, manufacturing price data, pending home sales and construction spending.
