daytrade diaries... november 25

Morning traders.

Market wrap: Australian stocks look set to open flat despite a late recovery on Wall Street.

US share indexes tumbled in early trade after a heavy fall on the Shanghai Stock Exchange yesterday as China's banking regulators clamped down on loose lending, raising concerns about the prospects for Chinese growth. But investor fears were soothed by the release of the minutes from the November Fed Reserve policy meeting, which point to a slow but steady recovery in the U.S.

The Dow Jones Industrial Average closed lower for the third session in four, down 0.16% at 10,434. The S&P 500 was near flat at -0.05% and the Nasdaq lost 0.31%.

A huge night of economic news gave mixed signals about the strength of the American economy. The Commerce Department lowered its estimates of third-quarter GDP and consumer spending, but there were better signs elsewhere. Home prices increased for a fifth month in September and a monthly reading of consumer sentiment rose more than analysts expected.

Minutes from the November meeting of the Federal Reserve's policy setting committee showed the central bank expects the economy to keep rebounding from recession, but unemployment is likely to remain high for another two years.

Biotechs were the pick of the US sectors, rising 2.7% in a falling market. Defensive sectors such as utilities, pharmaceuticals and consumer stocks also eked out minor gains,as did oilers and natural gas companies.

The major European markets faded to losses after yesterday's big advances. Britain’s FTSE gave back 0.59%, Germany’s DAX 0.55% and France’s CAC 0.75%.

Oil slumped on fears for the Chinese economy after banking regulators moved to curb loose lending yesterday, sparking a 3.5% slide on the Shanghai stock exchange. Crude oil futures were recently trading around 2% lower at $76.14 a barrel.

Gold was little changed and supported at its recent high by an increase in the holdings of the largest exchange-traded fund. The spot price was recently trading 80 cents higher than yesterday at $1,164.90 an ounce. The mixed economic data failed to lift base metals. Copper fell 1.1% in London and there were modest losses for zinc, aluminum, lead, nickel and tin.

Local futures traders hedged their bets about today's market direction. The SPI futures index closed flat at 4703.

TRADING THEMES TODAY

CHINA: No sooner had the IMF warned of the dangers of bubbles developing in Asia than Chinese regulators clamped down on local banks. Yesterday's 3.5% fall on the Shanghai Stock Exchange warrants attention because our economy is so dependent on China that bad news for Chinese growth is bad news for Australia. Any tightening of credit will rein in development and reduce demand for our resources. It will be interesting to see how our mining sector trades today in response.

THANKSGIVING: US markets close on Thursday for the Thanksgiving Day public holiday, so tonight's session will set the tone for the rest of the week in Australia. The Dow has fallen three out of the last four sessions, which will increase the pressure on US traders to close out positions ahead of the holiday. Also, our market has been sending warning signals for the last two weeks that in the short term further gains may be hard won. Caution is advisable.

ECONOMIC NEWS: RBA Deputy Governor Ric Battellino addresses the National Housing Conference in Melbourne at 9.20 am. ABS construction data are due at 11.30 am. Tonight brings the last big raft of economic releases in the US this week. Tonight's action includes: durable good orders, unemployment claims, personal spending, October new home sales, crude oil inventories and consumer sentiment.

Good luck to all.