Morning traders. Courage my friends - this is one of those days when fortunes are made and lost.
Market wrap: Australian shares are set to open at an eight-month low after Wall Street's worst intraday fall since the crash of 1987.
With 30 minutes left to trade, the June SPI futures contract was down 158 points or at 4415, suggesting our market will erase all of this year's gains at today's opening bell. The market last traded at those levels in September.
A decline in early trade in the U.S. turned into a total collapse, with the Dow Jones Industrial Average plunging nearly 1,000 points in intraday trade before staging a partial recovery. The intraday loss was the index's biggest since the crash of 1987. Market observers blamed programmed selling for the collapse after key technical levels were breached. Questions were being raised over possible "errant trades" on the New York Stock Exchange, but the exchange denied there had been problems.
The Dow hit a low of 9,873 before rebounding to close 348 points or 3.2% down for the session at 10,520. The S&P 500 closed 3.24% lower and the Nasdaq lost 3.44%.
"It's panic selling," said a chief investment officer at a U.S. firm told Bloomberg. "There's concern that the European situation might cool down global growth and freeze the credit markets."
The euro hit a 14-month low, the U.S. dollar surged and commodity prices slumped. Yields on Greek, Spanish and Italian bonds spiked on concerns that European leaders are not taking effective action to fix the region's debt crisis. Gold and U.S. Treasuries rallied as investors sought a safe haven from the carnage.
Market commentators said traders were shocked when European Central Bank President Jean-Claude Trichet admitted that the bank had not discussed buying government bonds to tackle the debt crisis.
"The ECB can fix this instantly by doing what the Fed has done - instantly providing liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars," the head of quantitative strategies at a U.S. firm told Bloomberg. "The reason the market is horrified now is Trichet said it's not even being discussed. Smart investors are basically selling risk assets."
The VIX, Wall Street's "fear gauge", jumped more than 60% to a new 2010 high. "Fear is taking over, and images of Greek mobs aren't helping," a U.S. equity trader told Bloomberg. "Buyers are stepping aside and disregarding fundamentals."
The U.S. dollar index surged 0.9%, making dollar-denominated commodity prices more expensive for overseas buyers. The price of crude oil collapsed below $75 a barrel before staging a partial recovery in late trade. Crude futures were recently trading at $76.98 a barrel, down $3 or 3.8% for the session.
Industrial metals weathered the storm reasonably well as bargain-hunters judged recent heavy falls offered value. Copper for July delivery fell just 1.1% in New York. In London, aluminium fell 1.8%, nickel 1.3% and zinc 0.9%. Lead gained 2%.
Gold was the night's big winner, surging 3% on its "safe-haven" appeal in times of trouble. The spot price was recently up $33 on Wednesday's New York close at $1,208.60 an ounce, within striking distance of December's all-time high.
The major European markets fell again after the European Central Bank kept rates on hold and failed to offer new ideas for dealing with the debt crisis. Britain's FTSE dropped 1.52%, Germany's DAX 0.84% and France's CAC 2.2%.
TRADING THEMES TODAY
PANIC: The decisions you make over the next few hours may determine your financial well-being for some considerable time, so make sure they are cool and considered. Panic has no place in effective investing/trading but it will run rampant through our market today. If you are experiencing panic right now, you are probably over-exposed and should consider trimming your holdings. We are now in a full-blown market correction. How long it will run is impossible to say but past history suggests overnight falls of this magnitude should be heeded. Further volatility almost certainly lies ahead. That said, today should offer great buying for value investors and for traders of a certain type. I will be buying, but my trading timetable is short and may not be the same as yours. This is a day of massive opportunity.
GOLD: The faith of the true believers was handsomely rewarded overnight with a huge spike in the price of gold as investors sought safe havens from the turmoil in equities. The chart looks great and a run at a new all-time high seems likely in the next few days. That may not be enough to save all local gold shares from the carnage today, however, they will offer better prospects once calm returns to the market. Any oversold gold share will top my 'buy list' this morning.
ECONOMIC NEWS: The AIG Construction Index is released at 9.30am. The RBA releases its quarterly monetary policy statement at 11.30 am. Tonight in the U.S.: the unemployment rate, non-farm employment change, monthly consumer credit and average hourly earnings.
