Market wrap: The local share market is likely to open near Friday's eight-month low after Wall Streets worst week since the financial crisis.
The June SPI futures contract ended last week 49 points lower at 4425, suggesting the market will open around 1% lower than Friday's close today.
Gloom over the spiralling European debt crisis saw Wall Street finish a tough week with further falls on Friday. The Dow Jones Industrial Average fell another 140 points or 1.33% to end the week 5.7% lower. The S&P 500 slipped 1.53% and a weak technology sector saw the Nasdaq tumble 2.33%.
The falls came in heavy trade as U.S. regulators continued to work towards an explanation for Thursday's extraordinary 1,000-point plunge on the Dow, which badly rattled investors.
"Everybody's trying to sort through what actually happened yesterday," one U.S. analyst told MarketWatch. "You're now seeing more caution and people are treading a little more carefully. Yesterday spooked a lot of people."
Upbeat U.S. jobs news failed to counter fears that European debt problems will see credit markets seize up as they did during the global financial crisis.
"The real danger here is that [Greece] will turn into a greater liquidity crisis," a U.S. portfolio manager told MarketWatch. "We've been moving our portfolios out of small and midcap stocks and into megacap stocks. You figure that if anything goes really wrong, those really big names will be able to weather it better and that you'll actually be able to trade them."
Wall Street's "fear gauge", the VIX, jumped 25% to 41.62, its first close above 40 since April 2009. The U.S. dollar eased back on the day but still recorded its biggest weekly gain since October 2008 as investors abandoned "risk assets" for the safety of the greenback and gold.
Gold hit a five-month high and closed within striking distance of December's all-time high. The spot gold price finished the week at $1,208 an ounce, down 80 cents from Thursday's New York close. Silver spiked more than 5.3% and platinum was little changed.
Oil retreated for a fourth straight day as speculators continued to leave the market. Crude futures fell $1.70 or 2.21% to $75.11 a barrel.
Industrial metals were mixed as a weaker U.S. dollar brought in some overseas buyers and markets flashed "oversold" signals. Copper recovered 1% in U.S. trade but lost 0.3% in London. In London, aluminium dropped 0.6%, tin 0.6% and zinc 1.1% but lead gained 2% and nickel 1.1%.
European markets closed their worst week in 18 months with heavy falls as they reacted to Thursday's events on Wall Street and Britain's election failed to produce a clear winner. Britain's FTSE fell 2.62%, Germany's DAX 3.27% and France's CAC 4.6%.
TRADING THEMES THIS WEEK
EUROPE: Global markets are losing confidence that Europe has the will or the means to stop the Greek debt crisis from spreading and infecting global credit markets. European leaders have been scrambling over the weekend to come up with a solution. Our market will provide one of the first tests this morning of whether their efforts have succeeded. After approving a bailout package for Greece on Friday, European leaders agreed over the weekend to set up an emergency fund to act as a "financial backstop" for euro-zone countries. However, cracks are already appearing. Britain says it won't underwrite the 60 billion euros fund and voters in a key German state election seem to have delivered a rebuke to chancellor Angela Merkel's support for a bailout for Greece. Read more here And here
DEFENSIVE TRADING: A concept that means different things to different investors. For the big boys, it means moving money from so-called "risk assets" (equities, commodities, foreign currencies) into "safe havens" (gold, the U.S. dollar, U.S. Treasuries). For a minnow like me it means reducing my average position size, abandoning the speculative end of the market for mid-caps where volatility and volumes have increased and closing most of my trades before the end of the day. We're also likely to continue to see institutional investors rotating out of cyclical sectors such as mining and financials into traditional defensive stocks, such as health, telecoms, utilities and consumer staples.
ECONOMIC NEWS: Monthly local job ads and business confidence are due at 11.30 am today. Tomorrow night's federal budget and Thursday's employment figures are this week's big local events. Chinese trade balance data are due at 2pm today and tomorrow brings the close-watched monthly data dump, including CPI, PPI, retail sales and industrial production. The economic diary is clear in the U.S. tonight but finishes the week with a flurry of releases.
