daytrades july 12 pre-market

Morning traders. Tin hats on standby.

Market wrap: A second day of falls is likely after Europe's deepening debt crisis sent overseas markets tumbling.

The September SPI futures contract ended the night session 40 points or 0.9% weaker at 4520 as the benchmark share index in the US suffered its biggest two-session dip in a month and oil, industrial metals and the Australian dollar were crimped by a retreat from risk assets.

The selling that began in Asia yesterday accelerated through Europe and into the US as traders abandoned financial stocks exposed to Europe's debt contagion amid increasing signs that Greece will default on some of its debt and Italy is sinking into the morass. The S&P 500 slumped 1.81% and the Dow lost 151 points or 1.2%. In Europe, Britain's FTSE fell 1.03%, Germany's DAX 2.33% and France's CAC 2.71%.

Investors dumped Euro-zone sovereign debt, sending yields towards record levels, following reports that European leaders are prepared to let Greece default on some of its bonds. The 10-year Italian government bond yield surged 45 basis points to 5.6%. Yields on Spanish 10-year bonds reached their highest level since 1997.

"The size of Italy's economy makes sovereign credit issues there a much greater concern," a manager at Bel Air Investment Advisors in the US told Bloomberg. "Greece, Portugal and Ireland are manageable given the small size of those economies relative to the EU. Once you cross the threshold into Spain and Italy, you're taking a big step up. That's a major negative."

Friday's disappointing US jobs report continued to weigh on market sentiment, as did the continuing impasse between political leaders over the US's debt ceiling. However, the US dollar rallied as investors sought safe havens. The dollar index was recently up 1.2%. The Australian dollar continued to decline, falling around two-thirds of a cent to US $1.0657.

Oil dropped towards US $94 a barrel but pared losses as US trading wound down. Crude for August delivery was recently off $1.06 or 1.1% at US $95.14 a barrel.

Industrial metals were caught up in the retreat from risk assets and concerns over Chinese tightening but found some support from strikes at key producers. In London, copper fell 0.9%, aluminium 2.1%, lead 1.6%, nickel 2.8%, tin 0.4% and zinc 1.6%. US copper was recently off 1%.

Gold offered a traditional safe haven, rebounding from a sharp mid-session sell-off. Gold for August delivery was recently ahead $12.30 or 0.8% at US $1,544 an ounce after earlier trading as high as US $1,557.60.

TRADING THEMES TODAY

DOWNTURN GATHERS PACE: Looks like another leg down for the local market today following signs overnight that the European debt crisis is infecting Italy and Spain, two economies large enough to matter to the global financial system. Financial stocks were hit hard in the US, but sector analysis offers no obvious refuge for local traders today - the sinking tide dragged most ships lower. Defensive sectors should fare better than most here. It will be interesting to see if the recent bullish mood amid the speccies can withstand another solid red day.

ALCOA MISSES TARGET: Hopes that the US earnings season will support current share prices suffered a mild knock after Wall Street closed this morning when aluminium giant kicked off a month of earnings reports with an improved profit that fell short of analysts' predictions. The share price, down 2.9% in regular trade, was recently off another 0.1% in after-market trade amid lacklustre trade. The result is by no means a disaster but it's unlikely to do much to improve sentiment on our market this morning.

ECONOMIC NEWS: Monthly business confidence numbers are due at 11.30 am AEST. Japan is due to release a monetary policy statement and overnight call rate today (exact time uncertain). European financial chiefs continue their meeting tonight on the sovereign debt situation. The trade balance is the main scheduled news tonight in the US. Also due: economic optimism data.

Good luck to all.