Market wrap: Locals shares face a weak start after European debt problems sparked a sell-off in commodities and a soft night on Wall Street.
A credit rating downgrade for Portugal saw investors scurry to the "safety" of the U.S. dollar and sell other assets perceived as more risky. Oil and metals were hit hard and U.S. equities closed in the red for the first session this week.
Futures traders expect our market to open 13 points lower. The June SPI futures contract closed at 4892.
Wall Street traded in the red all session but its losses were moderate after weeks of steady gains. The S&P 500 ended 0.55% lower, the Dow dropped 53 points or 0.48% and the Nasdaq lost 0.68%. The BNY Mellon Australia Classic ADR Index, which tracks Australian companies listed on American stock indexes or sold over the counter, sank 1.9% overnight.
The U.S. dollar rose sharply after Fitch Ratings downgraded Portugal's long-term credit rating to AA- from AA. The move raised fears about the outlook for other debt-laden European countries. The dollar hit a 10-month high against the euro and the dollar index, which charts the greenback against a basket of major currencies, spiked 1.2% higher.
"Portugal is obviously being seen as yet another domino in the line-up of (European Union) economies that face a long period of weak growth and recession as they slog through a protracted period of 'adjustment'," an analyst at Kitco Metals told MarketWatch.
U.S. overnight economic data also disappointed the market. The housing recovery is under a cloud after sales of existing homes fell 0.6% last month to their lowest level in eight months. Sales have fallen for the last three months, despite the restoration of a federal subsidy for first-time home buyers.
"The latest report adds further evidence that the extended home-buyers tax credit has so far failed to stimulate demand," wrote an economist for BNP Paribas quoted on MarketWatch.
Adding to concerns, a 0.5% rise in orders for durable goods in February missed expectations.
The rising dollar crunched dollar-denominated commodities and sent gold to a six-week low. The spot price plunged through the $1,100 mark that has acted as support for the last month, recently trading at $1,085.50 an ounce, down $17.30 on Tuesday's New York close. Silver and platinum also declined.
Oil was damaged by a rise in U.S. crude inventories, sliding $1.52 or 1.86% to $80.39 a barrel.
Several industrial metals hit multi-week lows as risk-aversion sent many buyers to the sidelines. In London, copper fell 1.3%, aluminium 2.7%, lead 4.2%, nickel 1.5%, tin 2% and zinc 2.1%.
European markets had another V-shaped session, plunging before recovering to close little changed. Britain's FTSE added 0.07%, Germany's DAX rose 0.36% and France's CAC lost 0.07%.
TRADING THEMES TODAY
RAMPANT GREENBACK: The U.S. dollar index broke out to its highest level in nearly a year last night as the European debt situation cranked up the fear factor on global markets. The festering problems in Europe do not seem likely to respond to quick fixes, and that points to an extended period of weakness in the euro, strength in the U.S. dollar and pressure on commodity prices. Gold looks particularly vulnerable after falling through a support level last night.
PULLBACK? Futures traders seem sanguine about last night's action but the sharp falls in commodities prices suggest heavier losses in local equities are likely today. Equally, the 1.9% fall in Australian equities traded in the U.S. overnight looks overdone. I'd expect our market to find a balance somewhere between the two.
ECONOMIC NEWS: RBA Assistant Governor Phil Lowe addresses an economic forum at 10.40 am. At 11.30 am, the RBA issues its biannual assessment of potential risks to financial stability. It's a big night in the U.S., with two potential market-movers: unemployment claims, which have remained stubbornly high; and Federal Reserve chairman Ben Bernanke's testimony before a House committee on the unwinding of emergency liquidity programs and implications for economic recovery.
