Stocks face a soft start to the week after signs of a slowdown in the US economy fuelled a sharp sell-off in commodities and a modest decline in US stocks on Friday.
The June SPI 200 futures contract retreated 19 points or 0.4% to 4997 as the S&P/GSCI index of commodities slid to its lowest level since July. Gold entered a bear market after plunging more than 5%, silver lost 7%, oil 3% and base metals all at least 2%.
US stocks pulled back from record territory as weak economic data compounded disappointing profit reports from Wells Fargo and JPMorgan Chase. The S&P 500 sagged 13 points at the open before paring its loss to four points or 0.27% as traders continued to pounce on any dip in the index. The Dow fared better still, recouping all of an initial 74-point fall to close even. The Nasdaq lost 0.16%.
"We're due for choppiness, given the run we've had, especially since the strong data we've seen recently looks increasingly misleading," the chief executive of Waddell & Reed Financial in the US told Reuters. "We're moving at a slower pace, and those who got overly excited about GDP growth are probably pulling in their horns a bit."
Declines in consumer sentiment and retail sales added to a string of economic misses over the last to weeks in the US that has investors fretting over the pace of growth. Retail sales decreased by 0.4% in March, the biggest fall in nine months. Consumer sentiment fell to its lowest level in nine months as higher payroll taxes took effect. The UMich-Thomson Reuters sentiment gauge fell to a preliminary April reading of 72.3 from a final March reading of 78.6. Both results were well below economists' expectations.
The financials sector lost 0.4% after reports from Wells Fargo and JPMorgan failed to lift the mood. Wells Fargo fell 0.8% after selling fewer home loans than expected last quarter. JPMorgan lost 0.6% after revenue came in below expectations.
The S&P's raw materials and energy groups both tumbled at least 1.3% as commodities bore the brunt of concern over the deterioration in US economic news. Oil fell to its weakest level in more than a month. West Texas intermediate crude for May delivery dropped $2.85 or 3.05% to US$90.66 a barrel.
An accelerating sell-off in gold pushed the metal to a level last seen in 2011, more than 20% off the record high of August of that year. Gold for June delivery plunged $88.80 or 5.7% to US$1,476.10 an ounce. Silver fared even worse, with the May contract cratering $1.94 or 7% to US$25.76 an ounce.
Industrial metals threatened key support levels as the market continued to suffer from soft demand and rising inventories. US copper for May delivery fell 10 cents or 2.9% to US$3.33 a pound. In London, copper gave up 2.5%, aluminium 2.15%, lead 2.1%, nickel 2.5%, tin 4% and zinc 2.4%.
"Copper has been turning bearish with weak macro numbers from the US and generally a very slow pick-up in China," an analyst at VTB Capital told Reuters. "It is a broader commodity market sell-off, due to macro tidings turning negative."
The major European markets lost ground following reports - later denied - that Cyprus had asked for more bailout assistance. Germany's DAX dropped 1.61%, France's CAC 1.24% and Britain's FTSE 0.5%.
TRADING THEMES THIS WEEK
COMMODITIES SLUMP: The Australian trading week is likely to begin on a soft note after a harrowing end to last week for gold, silver and to a lesser extent oil and other metals. An index of US gold and silver miners dived 5.65% on Friday and we may see something similar here today after the break of the psychologically-significant US$1,500 an ounce level. Several base metals also came perilously close to breaking support - one or two may already have done so. Iron ore seemed to have stabilised at a reasonably healthy level - it will be interesting to see if it can hold in the face of weakness elsewhere this week.
US EARNINGS: With global economic data taking a recent turn for the worse, the best hope for further gains on world markets this week seems likely to come from US corporate profits. The Q1 reporting season cranks into gear with roughly a third of companies from the Dow Jones Industrial Average due to report this week. The first week of the season produced no nasty surprises, but nor did it offer holders much reason to extend this year's bull rally. Hopefully that will change this week with reports due from: Citigroup (tonight); Coca-Cola, Intel, Johnson & Johnson (Tue); AmEx, Bank of America (Wed); IBM, Microsoft (Thu); and GE and McDonalds (Fri).
RIDING CHINA'S COAT-TAILS: Any weakness at the start of trade today could be quickly offset by the noon EST release of Chinese trade, industrial production and retail sales data. Or compounded. Quarterly GDP figures are expected to show economic growth edged up to 8% lats quarter from 7.9%. Incremental improvements are also expected in monthly industrial production, retail sales and fixed asset investment. A leading index is due on Friday.
ECONOMIC NEWS: This week's domestic highlights include: monthly home loans (11.30am EST today); minutes from the last RBA meeting, car sales (tomorrow); leading index (Wed); and business confidence (Thu). This week's US highlights include: Empire state index (tonight); consumer price index/core CPI, housing starts, industrial production (tomorrow); and weekly jobless claims, Philly Fed and leading indicators (Thu).
