Morning traders. Tin hats on.Market wrap: The biggest overnight...

Morning traders. Tin hats on.

Market wrap: The biggest overnight plunge in commodity markets in two years and a fourth night of falls for US stocks has set up Australian shares for a new six-week low this morning.

The June SPI futures contract ended the night session 34 points or 0.72% lower at 4718 after panic selling swept commodity markets, sending oil down 9%, silver another 12% and industrial metals more than 4%.

The Dow slumped nearly 200 points before a late rally moderated the loss to 140 points or 1.1%. The S&P 500 lost 0.91% and the Nasdaq 0.48%.

The rout followed a surge in the US dollar after the European Central Bank delayed interest rate rises and another round of weak US economic data that raised concerns about the strength of the global recovery. Weekly jobless claims confounded expectations by bouncing 43,000 higher to 474,000 last week, consumer confidence slid to a five-week low and productivity fell sharply.

"Earnings season started out strong and is ending strong," the head of the US equity group at Deutsche Bank told MarketWatch. "This is more about macro-driven concerns and about the level of growth in the economy, and ratcheting down expectations. The economic data, other than manufacturing, in the month of April was quite weak."

The US dollar index, which rates the greenback against six major currencies, rallied nearly 1.5% after the European Central Bank surprised some observers by holding off on near-term interest rate rises. The Australian dollar was recently 1.3% weaker at US $1.0586.

Resource stocks copped the worst of the selling in the US after the Reuters/Jefferies CRB Index, which measures a basket of commodities, fell 4.9%. An index of precious metals miners fell 3.4% and oil companies 2.6%. Airlines and other transport stocks that benefit from cheaper fuel rallied. BHP fell 2.8% in US trade, Rio Tinto 3.1% and Alumina 1.7%.

Analysts attributed the sharp falls in commodities to too many traders trying to lock in profits after a 23% gain in the CRB index this year.

"It's panic," the chairman of Marketfield Asset Management in the US told Bloomberg. "You have those super-crowded trades. Now you're in liquidation mode. There's nothing to do with weak US economic data. It's not a global financial crisis. It's a classic liquidation move in a crowded trade."

Silver extended its losses since Friday to nearly 30% after the principal US metals exchange announced additional margin requirements. Silver for July delivery was recently down $4.70 or 11.9% at US $34.68 an ounce on the New York Mercantile Exchange. Gold for June delivery fell to a three-week low, recently down $42.30 or 2.8% at US $1,473 an ounce.

Oil suffered its biggest overnight fall in more than two years, recently paring a double-digit loss. Light sweet crude for June delivery was recently down $9.40 or 8.6% at US $99.84 a barrel.

Copper hit its lowest level since December but fared best in the industrial metals complex. In London, copper fell 3.6%, aluminium 4.1%, lead 6%, nickel 5.1%, tin 6.25% and zinc 3.6%. US copper was recently down 3.8%. Platinum and palladium both fell more than 3%.

"It's a broad-based, 'risk-off' selling momentum that has gathered pace," a Barclays Capital analyst told Reuters. "Something has spooked the market, sentiment has nose-dived and I think the fact that it is sentiment-driven is illustrated in that it's not just happening in the base metals."

The major European markets were mixed as key earnings reports drove sentiment in each market. Britain's FTSE fell 1.07%, Germany's DAX was little changed at +0.04% and France's CAC eased 0.95%.

TRADING THEMES TODAY

COMMODITY ROUT ACCELERATES: Ouch. Some ugly figures overnight have set up our resource sectors for a brutal session. That is what happens when everyone tries to squeeze through the same door at once. There's a good chance commodity prices will get worse over the next few days before they get better but this will eventually pass once cooler heads prevail. Holders will have to decide whether to take the hit today or weather the storm. Silver's experience this week highlights the possible downside but it's an extreme example and none of the other major commodities appeared as over-bought. On the plus side, our dollar dumped another 1.5 US cents overnight, which is the main reason why our futures are not worse than they are. Might be time to look at some of the dollar-driven oversold industrials.

VOLATILE TRADING: We should be in for a torrid session after the massive slump in commodities overnight. This is one of those days when there is big money to be made - and lost. Our mining sector will likely see big gaps lower this morning but there will be some great recovery trades after the initial panic has worn off. My policy is to wait until the panic selling eases in the worst-hit resource stocks trading at significant support levels - these offer the best "bounce" candidates. To state the obvious, not all will bounce, so stop-loss discipline is crucial.

ECONOMIC NEWS: The Reserve Bank's quarterly monetary policy statement is due at 11.30 am. Monthly employment figures dominate the outlook for tonight in the US, including the unemployment rate and non-farm employment change. Also due: consumer credit and average hourly earnings.

Good luck to all.

PS As Tweets is off-line today, this thread will continue until the standard 'Afternoon' thread at 1 pm.