Market wrap: Australian stocks are set to slump at today's opening bell after weak manufacturing data sent Wall Street to its biggest one-day fall since July.
On a big night of conflicting economic signals, American investors were spooked that the monthly index of manufacturing activity fell to 52.6 this month from 52.9 in August. Analysts had expected a rise. The major stock indexes, already lower at the start of the session, fell away badly and the selling continued right through to the closing bell. The S&P 500 finished 2.58% lower, the Dow lost 2.09% and the Nasdaq a hefty 3.06%.
European markets also sold off. The FTSE lost 1.68%, the CAC 1.97% and the DAX 2.13%.
"We're clearly in an overbought situation right now," said one commentator quoted on MarketWatch. "We're bound to have a pullback, but I don't think it necessarily has to be a steep or prolonged one."
Other economic data were mixed. Construction spending increased by 0.8% compared to the previous month, beating expectations. An index of pending home sales spiked 6.4% to last month, compared to July, also beating analysts' forecasts. Other data showed Americans made income gains in August but their spending surged. But initial claims for jobless benefits rose 17,000 to 551,000 last week, worse than a predicted 5,000 rise and confirming that the jobs market is slow to heal.
There were heavy falls in most U.S. sectors: airlines -8.3%, banks -5.08%, REITs -4.49%, precious metals miners -4.6%, oilers -2.64%, biotechs 3.09%, industrials 3.22% and transport 3.44%.
Crude oil futures scraped out a gain of 0.3%, recently trading at $70.31. November natural gas futures plunged 7.7% as U.S. inventories hit a new record high last week. A rebound in the dollar sent the spot gold price back under $1,000, recently trading at $998.
The weak U.S. manufacturing data saw a sharp reversal on the London Metals Exchange after yesterday's swing higher. Copper dropped 2.37%, aluminum 1.43%, lead 3.79%, nickel 1.68%, tin 4.7% and zinc 2.44%.
Futures traders expect a grim start to the local session. With 35 minutes left to trade, the SPI futures index was down 77 points at 4643.
TRADING THEMES TODAY
NOWHERE TO HIDE: Last night's sell-off in the U.S. was broad and dragged down all sectors - most of them heavily. There were no obvious pockets of strength and it's hard to see Australia faring better, although defensive sectors such as health, utilities and consumer staples are unlikely to get hit as hard as cyclicals.
BOUNCE TRADES: There will be blood on the floor in the first hour of trade and that will create opportunities for entries at lower support levels. The best candidates are stocks in healthy uptrends that have been retracing for at least one day, ideally two, and that are sold down hard to a support level in early panic selling. For me, these are purely intraday trades - make a few points and get out before the dominant trend for the day reasserts itself.
ECONOMIC NEWS: Locally, the inflation gauge for this month is released at 10 am. Tonight is another big night in the U.S.: payrolls, unemployment figures, earnings and factory orders.
