Market wrap: Shares are likely to erase most of yesterday's gains after growing concerns about French debt fuelled another savage sell-off on overseas markets.
The September SPI futures contract ended the night session 99 points or 2.4% weaker at 3995 as benchmark indexes in Europe and the US plunged between three and five per cent overnight. Gold continued its record run but copper hit an eight-month low.
The Dow plunged 520 points or 4.62% to a new 11-month closing low as Tuesday's "dead cat bounce" swiftly unravelled. The S&P 500 fell 4.42% and the Nasdaq 4.09%.
France was the new focus of Eurozone debt fears as the cost of insuring against a French default soared to record levels and the country's second largest bank, Societe Generale, suffered its biggest fall in more than 20 years. US shares were briefly boosted mid-session by a robust defence of its financial position by SocGen, then collapsed to new intraday lows. The falls came despite assurances from the three ratings agencies overnight that France's triple-A credit rating is not in danger.
European share markets plummeted, led by banks exposed to sovereign debt. France's CAC fell 5.45%, Germany's DAX 5.13%, Italy's FTSE MIB 5.95% and Britain's FTSE 3.05%.
"It's a spiral down until it stops," the president of Chase Investment Counsel in the US told Bloomberg. "We're going through these constant day-to-day battles over Europe's debt crisis, a downgrade in the US and a weakening economy. There's no positive sentiment regarding a light at the end of the tunnel."
Commodities endured a mixed night as the US dollar rallied strongly against the euro. An unexpected decline in US oil inventories helped crude recover from yesterday's 10-month low. Crude for September delivery rallied $2.70 or 3.4% to US$81.99 a barrel. Oil has fallen 13% this month as risk appetite and the global economic outlook deteriorated.
Precious metals remained the haven of choice for many investors amid the turmoil on equity and currency markets. Gold for December delivery was recently up $53.70 or 3.1% at US$1,797 an ounce. September silver added $1.43 or 3.8% at US$39.32 an ounce.
Copper sagged to an eight-month low despite data yesterday showing Chinese imports rising to a six-month high last month. In London, copper fell 0.9%, aluminium 0.2% and nickel 0.6%. Lead improved 1.4%, tin 0.1% and zinc 1.1%. US copper was recently off 1.75%.
TRADING THEMES TODAY
VOLATILITY RULES: Tuesday's "Bernanke rally" looked too good to be true given the Fed's gloomy assessment of the US economy, and so it proved. Any hopes that this "dead cat bounce" might last a few days were swiftly dashed. There are simply too many reasons to be bearish about the global outlook for equities to prosper. Volatility will remain at elevated levels until this pullback finds a floor and that could be days, weeks or likely months away. There will be short, sharp rallies along the way but the trend for now remains depressingly negative. Stay nimble and preserve capital.
JOBS: Market observers will keep a close eye on the latest domestic jobs numbers, due this morning at 11.30 am AEST. Australian economic reports have been deteriorating in line with global trends recently, leading economists to tip the unemployment rate to hold steady at 4.9% with jobs growth of around 10,000 positions. Anything worse will increase the odds that the next interest rate move will be down. Falling interest rates are broadly positive for equities, but a declining economy clearly is not!
ECONOMIC NEWS: Monthly employment figures are due at 11.30 am AEST (see above). Highlights tonight in the US are likely to be the weekly jobs report, trade balance and natural gas storage.
