Market wrap: The Australian share market will start the week under pressure after heavy losses on commodity markets and in overseas equities.
Futures traders expect local stocks to open around 1.8% weaker this morning after the June SPI futures contract ended 79 points lower at 4531.
European share markets slumped on Friday as fears of deflation in Spain sent the euro to its lowest level against the U.S. dollar since October 2008. Wall Street followed European markets south as a rampant greenback and a flight from risk drove buyers from both equities and commodities.
The Dow Jones Industrial Average closed 163 points or 1.51% lower at 10620 after declines in all 30 components. The broader S&P 500 lost 1.88% and the Nasdaq 1.98%.
The ramifications from European debt continued to dominate trade around the globe. Market commentators said that the outlook remains dim, with austerity packages necessary but likely to crimp growth for years to come. Also harming sentiment were reports that French President Nicholas Sarkozy had threatened to pull out of the euro if other nations didn't contribute to a bailout plan. The reports were denied.
"Spending cuts highlighted in the eurozone rescue package fuelled fears of economic stagnation throughout the continent, and escalated doubts about the weaker countries' ability to bounce back from jaw-dropping debt," an investment research firm told AFP.
Nervy investors abandoned European banks and miners as a softer euro made them less attractive. The French CAC-40 fell 4.6%, Germany's DAX 3.1% and the U.K. FTSE 3.1%.
The dollar index, which measures the greenback against a basket of other major currencies, hits its highest level in more than a year, raising the cost of dollar-denominated commodities for overseas buyers.
Crude oil skidded to a three-month low. Crude futures retreated by $3.56 or 4.5% to $75.77 a barrel.
Hopes that industrial metal prices were consolidating at a new base suffered a heavy blow as fears of a Chinese slowdown continued to weigh on the market. In London, copper fell 3.8%, aluminium 4%, lead 6.8%, nickel 5.4%, tin 2.1% and zinc 5.6%.
"There are fears that the introduction of further restrictive monetary measures in China might be imminent... Therefore, no major upwards jumps in prices of base metals should be expected," Commerzbank said in a note quoted on Reuters.
Gold remained among a handful of "safe havens" that found buyers on Friday. A choppy session saw gold hit a new all-time high, fall sharply and then rally again to finish little changed. The spot price ended the session $1.20 lower than Thursday's New York close at $1,231.40 an ounce.
TRADING THEMES THIS WEEK
FLIGHT FROM RISK: What began as a week of strong recovery on global markets last Monday finished in alarming retreat. The VIX or "fear gauge" jumped on Friday as traders abandoned "risk assets" - equities, commodities, the euro, the Australian dollar - for supposed safe havens such as the U.S. dollar, precious metals and U.S. Treasuries. This will be an important week for global equities. We may be heading for a quick re-test of the May 7 lows. A break lower would sew panic on world markets. Alternatively, a bounce off a higher low would restore confidence that there is life left in this bull run. Anyone still wondering why we should care about European debt should read this article.
BOUNCE SCALPS: When markets swoon, the standard diet of day traders/short-term traders - momentum trades - largely dries up but opportunities for swing traders willing to buy pullbacks at support levels increase. I'll look to buy oversold shares hitting support levels hard in the first half-hour, then reversing as the buy/sell ratio improves. Trading in the speculative end of the market tends to dry up when conditions weaken but the mid-cap level increases in volatility, so that's where I concentrate my search.
ECONOMIC NEWS: The local calendar is empty today and relatively light for the rest of the week. American economic news has been overshadowed by Europe over the last month and that may not change this week. The last of the Q1 earnings reports will dribble in and there are PPI and CPI figures due on Tuesday and Wednesday, respectively. Tonight: regional manufacturing and net foreign purchases of Long-Term Securities.
