Market wrap: A V-shaped night on Wall Street points to a positive start for local trade this morning despite steep falls on commodity markets overnight.
With 5 minutes left to trade, the June SPI futures contract was ahead 33 points at 4528, suggesting the local share market will recoup some of yesterday's heavy losses at today's opening bell.
Wall Street snapped a two-day losing streak as the Dow recovered from a 184-point plunge to edge positive in late trade. But a torrid night on commodity markets saw industrial metals and oil slump as the euro spiralled to a four-year low against the U.S. dollar.
However, a recovery in the euro saw the S&P 500 reverse to close 0.11% higher, the Dow up 7 points or 0.06% and the Nasdaq +0.31%.
Wall Street's attention remained firmly focused on the European debt crisis, but also weighing on U.S. trade was a slowdown in U.S. regional manufacturing, a weak outlook from retailer Lowe's and a 5% dive on China's main stock index yesterday after Chinese Premier Wen Jiabao warned that China will act to cool its housing market.
"The market and its players simply don't believe that the plan for Europe to stop spending and reduce its debt is going to work without having a significant impact on its economy," a managing director of fixed-income capital markets in the U.S. told MarketWatch.
"The economic barometers are weighing on investors' mood," the chief investment officer at a U.S. bank told Bloomberg. "Manufacturing and Lowe's numbers did not help, we've got oil down and there's still concern about Europe. Investors appear to be resetting their expectations."
The dollar index, which tracks the greenback against six major currencies, hit its highest level in more than a year as the euro wilted but pared gains as the session went on. The index was recently up just 0.06%. Wall Street's fear gauge, the VIX, rose 5% to 32.80.
Oil slumped to a five-month low under a combination of a strong U.S. dollar and the weakening outlook for demand from China and Europe. The July contract was recently down $1.76 or 2.3% at $73.67 a barrel.
Industrial metals prices were savaged in what traders described as panic selling on fears of a Chinese slowdown. Zinc suffered its heaviest intraday fall in 19 months, lead hit its lowest level since last July and other metals hit multi-month lows. Zinc for three-month delivery fell 10% on the London Metal Exchange, its lowest intraday price since September. Aluminum dropped 5.6%, lead 10% and tin 2%. In the U.S., copper fell 6.5%.
"There is extreme uncertainty over Europe and you're seeing the Chinese stock market come off, following their internal economy down. You're losing two legs of support and it's telling me we're coming into a much slower period of economic activity," a U.S. metals trader told Reuters.
Gold has been a safe haven during this latest equity and commodity correction but slipped overnight. Market commentators said traders were selling bullion to cover margin calls in stocks and other commodities. The spot gold price was recently $9.50 or 0.9% lower than Friday's New York close at $1,221.90 an ounce.
The major European markets closed mixed but little changed. Britain's FTSE was 0.01% lower, Germany's DAX 0.17% stronger and France's CAC off 0.47%.
TRADING THEMES TODAY
INDUSTRIAL METALS: Last night's price action was devastating for base metals and the consequences are likely to be severe for many of our miners this morning. That should offer bounce-trade opportunities if the market overshoots to the downside but caution is advisable after several support levels collapsed last night. The historical charts at Kitco are worth studying for the full picture: Kitco - click 'Charts' on left, then 'Historical charts'
CHINA: Yesterday's 5% tumble on China's main stock market index, the Shanghai Composite, sent it to a one-year low. Traders will keep an anxious eye on the index today for signs of a rebound. You can track it here under 'SSE'.
ECONOMIC NEWS: The minutes from the last Reserve Bank meeting are due at 11.30 am. In the U.S. tonight: housing starts, building permits and the monthly producer price index.
