daytrades may 27 pre-market

Morning traders.

Market wrap: Local stocks are set to open modestly lower this morning after a rally on Wall Street fizzled out after reports that China may abandon key European investments.

The June SPI futures contract closed 6 points down at 4294, pointing to a cautious start to the session despite overnight gains for key commodities. Copper, oil and gold all kicked higher despite further gains for the U.S. dollar as the euro broke under a key support level.

Wall Street was ahead more than 1% in early trade after confidence in the U.S. economy was boosted by the best new home sales in two years and stronger-than-expected growth in durable-goods orders. But the indexes collapsed to losses after a newspaper report that China is considering reducing investments in European government bonds, raising fears that the credit crisis will worsen.

The Dow closed 69 points or 0.69% lower at 9,974 - finishing under the psychologically important 10,000 level for the firs time in six months. The S&P 500 lost 0.57% and the Nasdaq 0.68%.

"The market is fragile," the chief investment officer of a U.S. firm told Bloomberg. "Europe will continue to weigh on investors' perception. The U.S. economy is on solid footing as shown by the encouraging data points we're getting. But there are still too many uncertainties about Europe."

Sales of new homes in the U.S. surged nearly 15% last month to the highest level since May 2008 as a looming deadline to qualify for tax credits encouraged buyers. The seasonally adjusted annual rate of 504,000 sales was well ahead of the 425,000 that economists surveyed by MarketWatch expected. A separate report showed orders for American-made durable goods increased 2.9% last month, the fourth rise in five months.

The Financial Times claimed that China's State Administration of Foreign Exchange is reviewing its holdings of European bonds. Observers fear that any reduction in Chinese investment in Europe will compound the debt crisis. The euro broke back through US$1.22 towards last week's four-year low.

There was some relief for beaten-up commodity prices, despite a stronger U.S. dollar. Oil rallied nearly 3% as investors focussed on evidence of the improving U.S. economy and a pick-up in domestic demand. Crude futures were recently $2.20 or 3.2% higher at $70.94 a barrel.

Gold continued to benefit from uncertainty over Korea and Europe. The spot gold price was recently $9.40 or 0.9% higher than Tuesday's New York close at $1,210.60 an ounce.

Copper climbed for the third time in four sessions as investors bet on improving U.S. demand. Copper for July delivery rose 1.3% in New York. Other metals were mixed.
In late trade in London, aluminium was off 0.3%, lead 4%, nickel 0.7% and tin 0.4%. Zinc was 1.5% higher.

The major European markets recovered most of Tuesday's heavy losses, closing higher before the Chinese euro-bond news-story appeared. Britain's FTSE added 2%, Germany's DAX 1.5% and France's CAC 2.3%.

TRADING THEMES TODAY

COMMODITIES UP, EQUITIES DOWN: There are hints that oil and base metals may have found a temporary bottom after weeks of heavy selling, but last night's U.S. equity action confirms that sentiment is fragile and traders will sell first and consider longer-term implications later. Wall Street is starting to look like it "wants" to rally, but these wild intraday swings are not symptomatic of a healthy market. The Dow's close below 10,000 is psychologically significant and may further impact retail investor sentiment. For me, it's another day to stay out of the opening auction and wait for the market to present "oversold" opportunities later in the session. It's a strategy that has worked well for the last few weeks.

ECONOMIC NEWS: The Conference Board's Leading Index of economic indicators is due at 10.00 am. Quarterly private capital expenditure figures are due at 11.30 am. The menu in the U.S. includes unemployment claims, quarterly GDP and natural gas storage.

Good luck to all.