Market wrap: Australian shares are set to open at a two-month low after Wall Street's worst week since January and the introduction of a new tax on miners.
The local June SPI futures contract ended last week 62 points lower at 4757, but that was before yesterday's announcement of a proposed new resources profit tax.
Wall Street swooned on Friday on news that Goldman Sachs may face criminal charges on top of the civil fraud suit already announced by the Securities and Exchange Commission. The Dow plunged 159 points or 1.42% to snap an eight-week winning streak, its longest since 2004. The S&P 500 fell 1.67% and disappointing technology earnings reports helped the Nasdaq tumble 2.02%.
Shares in Goldman Sachs slumped 9.4% as broker downgrades quickly followed a Wall Street Journal report that Federal prosecutors are conducting a criminal securities-fraud investigation. The report said prosecutors have not decided whether to bring charges.
"The market more or less shook off the civil fraud charges against Goldman earlier in the month," the chief investment officer of a private bank told MarketWatch. "But as you get a criminal investigation, it begins to feel more like a witch hunt, and witch hunts tend not to end well for these firms."
Technology and consumer stocks were big losers after weak earnings reports from McAfee and MEMC Electronic Materials and a dip in a closely-watched consumer-sentiment index. However, the Commerce Department painted a brighter outlook for consumer spending, revealing a 3.2% annual rise in GDP.
There were a few glimmers of green among U.S. sector indexes - precious metals miners added 0.24% and utilities 0.65% - but most finished negative. Among the worst hit were REITs -3.4%, tech stocks -2.4%, industrials -2.2% and banks -1.4%.
Commodity prices found some respite in a retreat in the U.S. dollar as the euro strengthened on hopes that a European Union-IMF aid plan for Greece was close to being activated. The dollar index, which tracks the greenback against six major currencies, softened by 0.3% on Friday.
Gold punched to a four-month high as traders sought a safe haven from Friday's turbulence. The spot price ended $12.10 or 1.2% higher than Thursday's New York close at $1,179.30 an ounce. Silver and platinum also advanced.
Oil traders shrugged off the weakness in U.S. equities, focusing instead on the weaker dollar and rising GDP. Crude futures rallied $1.05 or 1.23% to $86.15 a barrel.
Most industrial metals finished a dismal month on a high note. In London, copper rallied 0.8%, aluminium 2.1%, nickel 4.1% and zinc 1.1%. Tin lost 0.1% and lead 0.25.
The major European markets closed lower ahead of the worst of the carnage in the U.S. Britain's FTSE dropped 1.15%, Germany's DAX 0.15% and France's CAC 0.62%.
TRADING THEMES THIS WEEK
RESOURCES PROFIT TAX: Yesterday's announcement of what appears to be the world's heaviest tax burden on mining companies appears likely to wreak havoc on Australian mining share prices this week. The proposed tax of 40% on resource profits is not due to start until 2012 but you can bet institutional number-crunchers will have spent all night running the numbers. "Australia will have the highest taxed mining industry in the world," Minerals Council of Australia Chief Executive Officer Mitch Hooke said in a statement quoted on Bloomberg. The government has stuck a big target on our mining sector for hedge funds looking for companies to short-sell. This week could be very ugly indeed.
INTEREST RATES: The Reserve Bank sits tomorrow. The odds appear to favour another rise in the cash rate from 4.25% to 4.5%. An announcement is due at 2.30pm.
GREECE: Media reports say Greece yesterday agreed terms to accept a bailout package from euro-zone countries and the International Monetary Fund. That's an important step but it should be obvious by now that this saga is going to run longer than one of Homer's epic poems.
U.S. EARNINGS: Wall Street's long rally through April was driven by strong Q1 profit reports and there are more to come this week. Around a third of S&P 500 companies have still to report. Of the 324 companies that have already delivered earnings, 252 have beaten consensus analysts estimates, making this one of the strongest earnings seasons on record.
ECONOMIC NEWS: A busy start to the week here, with the monthly manufacturing index at 9.30am, monthly inflation gauge at 10.30 am, quarterly house price index at 11.30 am and the Reserve Bank's annual index of commodity prices at 4.30 pm. Tomorrow's interest rate decision is the main local event this week but a busy schedule lies ahead here and in the U.S. Tonight in the U.S.: the monthly core price index, personal income and spending, the purchasing managers index, monthly construction spending and total vehicle sales.
