Morning traders. Tin hats won't be enough today - you'll need a full suit of armour, BOS and a strong stomach.
Market wrap: Australian shares are poised to open at their lowest level in around two years after Wall Street's worst night since February 2009.
The September SPI futures contract ended the night session 157 points or 3.7% weaker at 4091 as a brutal sell-off in Europe and the US dragged benchmark indexes into correction territory. Commodities were savaged, with oil and silver both off more than 6%, as a soaring US dollar stripped nearly three cents off the Australian unit.
The Dow plummeted 513 points or 4.31% as recession fears in the US and signs of stress in European bonds roiled the market. Just three of the 500 companies in the S&P 500 improved as the benchmark index slumped 4.78%. The Nasdaq lost 5.08% during a night of controlled selling that continued right through to the close.
"It's not a flash crash," the chairman of Marketfield Asset Management in the US told Bloomberg. "It's much more orderly and I don't see any weird prints like we saw that day in individual issues. I still couldn't tell where this market will bottom. I also don't think this is 2008 when you saw a genuine failure of global finance to be able to fund asset process. You don't see money markets going crazy. It's a plain and simple liquidation of equities and commodities."
The rout began in Europe, where European Central Bank President Jean-Claude Trichet warned of decelerating European growth and intensifying downside risks. Traders hoping for fresh news of plans to contain rising borrowing costs for Spain and Italy were left disappointed. Spain's IBEX 35 index fell 3.9%, Italy's FTSEMIB index 3.2%, Britain's FTSE 3.2%, Germany's DAX 3.4% and France's CAC 3.9%.
Energy and mining stocks suffered the biggest falls among the S&P 500's 10 industry groups, dropping more than 6.6%. In US trade, BHP fell 7.5%, Rio Tinto 9.7% and Alumina 10.9%.
Commodities were hit by a surge in the US dollar and traders liquidating positions to meet equity margin calls. The dollar index was recently up 1.75%, sending the Australian dollar down nearly three cents to US$1.0478.
Crude oil skidded to February levels amid recession fears and margin calls. Crude for September delivery was recently down $5.55 or 6% at US$86.38 a barrel.
Not even gold escaped the carnage as traders were forced to sell to cover positions elsewhere. Gold for December delivery was recently down $16.60 or 1% at US$1,649.701 an ounce. September silver fell $2.82 or 6.8% to US$38.94 an ounce.
Industrial metals declined, with copper hitting a one-month low, but once again remained relatively resilient. In London, copper fell 2%, aluminium 1.1%, lead 2.2%, nickel 0.75%, tin 2.3% and zinc 1.55%. US copper was recently off 2.7%.
TRADING THEMES TODAY
STAY CALM, ASSESS, ACT: This is a day for cool heads and measured thinking. There's no way to massage last night's ugly overseas performance. With the global economic outlook darkening, investors all rushed for the doors at once and the result was one of the most ominous, controlled sell-offs I can recall. Individual traders/investors will have to decide how these overnight developments change their personal situation. You may have deep enough pockets to ride this out, but last night's performance suggests things are likely to get worse before they get better - there was no hint of a bounce in US or European markets. If you're over-exposed, the smart thing may be to reduce your positions. Only you can know that. There will be a barrage of opinions on the various stock threads with bulls shouting buy, buy, buy and bears shouting sell, sell, sell. Many of these people will be motivated by self-interest. Ultimately, your own counsel and personal circumstances are what matter. Good luck.
BARGAIN-HUNTING: As a trader I'll look for intraday scalping opportunities today, but I admit this is rare and largely unfamiliar territory. How big a fall will be enough? I have no idea but I hope to recognise it when it happens. Traditional support levels will count for little as panic rules. Instead, I'll try to pick the moments in individual securities when panic selling is exhausted and buyers step in. It's high risk and a positive outcome is by no means guaranteed.
ECONOMIC NEWS: The construction index is due at 9.30 am and the Reserve Bank's monetary policy statement at 11.30 am. Tonight's main event in the US is the non-farm employment change report - fingers crossed for a surprise result. Also due: unemployment rate, average hourly earnings and consumer credit.
