Daytrading August 12 pre-market

Morning traders. Thanks Trees and after-market regulars.

Market wrap:

Shares look set to open at their weakest level in a month after fear of a slowdown in China helped push US stocks sharply lower and drove oil, copper and aluminium to six-year lows.

The September SPI200 futures contract declined 28 points or 0.5% to 5378 as China's surprise currency devaluation reverberated through investment markets.

The S&P 500 fell 20 points or 0.96%, reversing most of Monday's 1.2% relief rally. The Dow captured most of the overnight headlines as its eighth fall in nine sessions triggered a so-called 'death cross' for the first time in four years. A death cross happens when a financial instrument's 50-day moving average falls below its 200-day moving average. The blue-chip index lost 212 points or 1.21%. The Nasdaq shed 65 points or 1.27%.

The retreat followed news yesterday that China devalued its currency by the most in 21 years in a bid to boost exports. The central bank cut its daily reference rate by 1.9% in a signal that the government is more willing to let market forces dictate an appropriate level for the currency after years of tight government control. Read more here. The unexpected move precipitated sharp moves in currency markets, commodities and equities with exposure to Chinese demand.

"I think the market's perception is if China is doing that they're really worried about their economy," Jason Leinwand, managing director at Riverside Risk Advisors in the US, told CNBC. "Any currencies that have direct ties with China will be weakened."  

The Australian dollar tumbled more than a cent and was this morning buying 73.07 US cents after falling to within half a cent of a six-year low overnight. Read more here.

US traders fretted that China's move will damage exporters as a rising US dollar makes American companies less competitive. There was also speculation that the unexpected twist will force the Federal Reserve to delay raising rates for the first time in nine years at next month's policy meeting.

"What is of interest is how the US will react to this move," Nour Al-Hammoury, chief market strategist at ADS Securities in the US, told MarketWatch. "It will almost certainly cause Janet Yellen and the Fed more problems and could possibly kill off the September rate hike, as any further gains by the US dollar could cause more problems for the US economy. It is clear that the ‘currency war’ is back, which will make the next few weeks very interesting."

Crude oil tumbled to its lowest level since March 2009 amid fear that the devaluation of the yuan signals softening Chinese demand. West Texas Intermediate crude oil for delivery in September settled $1.88 or 4.2% weaker at US$43.08 a barrel.

“Traders are interpreting the yuan weakening as recognition by the Chinese government that economic growth is clearly under pressure and the extent of the slowdown could be more acute than the headline data is revealing. And when things aren’t going so well in the world’s second largest economy commodity prices get hit,” Bob Shiring, energy analyst at Tradition Energy in the US, told MarketWatch.

Monday's relief rally on the London Metal Exchange was erased in a wave of selling, pushing copper and aluminium to post-GFC lows and zinc to its weakest point in three years. London copper slumped 3.5%, aluminium 1.9%, lead 2.1%, nickel 3.5%, tin 3% and zinc 4%. US copper for September delivery was recently up % at US$2.42 a pound.

Companies with direct exposure to the Chinese economy took the heaviest hits. BHP lost 4.78% and Rio Tinto 3.68% in US trade. Spot iron ore for import to China yesterday rallied 40 cents to US$55.90 a dry ton.

Gold was again one of the few bright spots, with the NYSE Arca Gold Bugs index rising 2.04% as the precious metal gained for a fourth session. Gold for December delivery settled $3.60 or 0.3% ahead at US$1,107.70 an ounce amid speculation that Chinese investors will turn to the metal as a haven against the falling yuan and ructions in the Chinese stock market.

Exporters led a retreat in Europe. The Stoxx Europe 600 declined 1.55%, Germany's export-heavy DAX 2.68%, France's CAC 1.86% and Britain's FTSE 1.06%.

TRADING THEMES TODAY

CHINA BLUES: Yesterday's Chinese black swan event snuffed out a promising revival on the ASX and threatens to push us back towards 5400 this morning. The market has been trading sideways for two months but hasn't managed a convincing break north to signal that the retrace that began in April is finally over. With China top of mind today, the 3.30pm release of Chinese industrial production, retail sales and asset investment data may have more of an impact than usual. Resource stocks look likely to cop the brunt of the selling after oil, copper, aluminium and zinc recorded unwanted milestones overnight. Iron ore remained oblivious. Gold is back in vogue as a haven, but gains have been modest.  

ECONOMIC NEWS: August consumer confidence figures are due at 10.30am EST, followed by quarterly wage price index data at 11.30am. China releases July industrial production, retail sales and fixed asset investment figures at 3.30pm. A light menu tonight in the US includes JOLTS job openings, crude oil inventories and a speech by a Fed official.

Good luck to all.