daytrades may 12 pre-market

Morning traders. Tin hats on.

Market wrap: Commodities plunged overnight on global inflation fears, with sharp falls in resource stocks dragging Wall Street to its biggest loss since March and setting up Australian shares for a red open.

The June SPI futures contract ended the night session 56 points or 1.17% weaker at 4729 as oil plunged back under US $100 a barrel, copper fell to a six-month low and silver lost more than 8%.

The S&P 500 snapped a three-day winning run, closing 1.11% lower as the energy and resource sectors fell around 4%. The Dow dropped 130 points or 1.02% and the Nasdaq lost 0.93%. Australian miners listed in the US fared better than many US peers but still lost ground. Rio Tinto fell 2.7%, BHP 2.3% and Alumina 1.5%.

The rout was sparked by yesterday's Chinese economic figures, which combined slowing growth with strong inflation, heightening fears of further interest rate rises. Poland raised interest rates overnight, Germany reported higher-than-expected inflation and the Bank of England said inflation was "uncomfortably high" and rate rises are likely.

"Inflation seems to be rearing its ugly head," a money manager at Thornburg Investment Management in the US told Bloomberg. "Some countries are raising interest rates as a way to combat inflation. That's putting pressure on stocks."

Festering Greek debt worries fuelled another sell-off in the euro, sending the US dollar index up 0.9% and adding to the pressure on stocks and dollar-denominated commodities. The Australian dollar tumbled nearly a cent and a half to trade recently at US $1.0699.

A rise in US oil inventories triggered heavy falls in energy contracts overnight, briefly forcing trading to be suspended and daily trading limits increased. US gasoline futures tumbled 9% and oil more than 5% after US authorities said inventories increased by more than twice the level analysts expected last week. Crude for June delivery was recently down $5.28 or 5.1% at US $98.60 a barrel. Gasoline futures were off 7.6%.

Silver was dumped as risk appetite crumbled. July silver was recently down $3.36 or 8.7% at US $35.15 an ounce. Gold fared better as a traditional safe haven in times of strife but the June contract still declined $16.40 or 1.1% to US $1,500.50 an ounce.

Industrial metals resumed last week's sell-off on the prospect of a slowdown in China. In London, copper fell 3%, aluminium 2.1%, lead 2.1%, nickel 2.2%, tin 2% and zinc 1.5%. US copper was recently down 3.3%.

The major European markets ended mixed, with Britain's FTSE hit hardest over interest rate concerns. The FTSE fell 0.71%, Germany's DAX 0.09% and France's CAC added 0.14%.

TRADING THEMES TODAY

FLIGHT TO SAFETY: Boy, did our market misjudge the reaction to China's economic update yesterday. Add further signs of stress in Greece and Portugal overnight and you had the recipe for a sharp pullback. The volatility in commodities has some commentators predicting a deeper pullback in shares. Peter Boockvar told MarketWatch: "The correction in commodities over the past week is the first shaking of the tree that should not be ignored and will be the precursor to a painful 10%-plus correction in stocks over the next few months. Both rallied hand in hand since late August and thus won?t be separated in market action." Our futures currently represent little more than the unwinding of yesterday's rise, so there is the potential that today's action could be worse. The slump in our dollar may help industrials and exporters this morning but the resource sector looks set for a hiding. Trade safe.

ECONOMIC NEWS: A busy 24 hours ahead, with local employment change and unemployment rate data due at 11.30 am and then a packed schedule tonight in the US. Highlights include monthly retail sales and core retail sales, weekly unemployment claims, the producer price index and testimony by Fed chairman Bernanke before the Senate committee on Banking, Housing, and Urban Affairs.

Good luck to all.