Australian shares are pointing lower following Wall Street's worst night since June amid gloomy corporate earnings outlooks and escalating borrowing costs.
The September SPI 200 futures contract retreated 36 points or 0.7% to 5074 after the Dow logged back-to-back triple-digit declines and the S&P 500 hit a six-week low.
Reduced earnings forecasts from retailers Wal-Mart and Macy's and IT giant Cisco cast a pall over the session. The S&P 500 sagged 24 points or 1.45% with the consumer discretionary and technology sectors both declining at least 1.8%. The Dow tanked 226 points or 1.47% and the Nasdaq lost 1.72%.
Also unsettling investors were a mixed bag of economic data, turmoil in Egypt and the steady rise in interest rates since the Federal Reserve raised the possibility that it might start to "taper" its stimulus program before the end of the year.
"With weaker earnings, higher interest rates and geopolitical concerns, risk assets like stocks don't do well in that type of environment," the senior equity strategist for US Bank Wealth Management told Bloomberg. "The jobless claims numbers were sufficiently strong that taper fears are probably front and centre."
First-time claims for unemployment benefits last week reduced by 15,000 to 320,000 last week, the lowest level in six years. Consumer inflation increased by 0.2% last month, industrial production was steady but regional manufacturing gauges for the greater New York and Philadelphia regions both declined. Overall, analysts said the data favoured a near-term reduction in the Fed's stimulus program.
"A host of data was released this morning but judging by the reaction in bond yields, the overall reaction is positive for the economy and negative for Fed asset purchases," the chief global strategist at BTIG told MarketWatch. "The continued reduction in the pace of firings to the slowest since the fall of 2007 should point the Fed further into the camp of taper sooner rather than later, and it's likely why the 10-year yield touched 2.80% immediately after versus 2.71% just yesterday and why the S&P futures are at the low of the morning."
Shares in Dow component Cisco slumped 7.15% after it announced it was slashing 4,000 jobs to cope with a "challenging" and "inconsistent" economy. Wal-Mart, another Dow component, slipped 2.6% as it warned that consumers were not spending as much as expected, a day after Macy's delivered essentially the same message.
Precious metals were among the night's winners as falls in the US dollar, stocks and bonds and rising inflation encouraged rotation into alternative stores of wealth. Gold for December delivery rallied $31.70 or 2.4% to US$1,365.10 an ounce. September silver rocketed $1.19 or 5.5% to US$22.98 an ounce.
Oil touched a two-week high, rising for a fifth night as violent clashes in Egypt raised concerns over the country's role as a transport link from the Middle East. West Texas Intermediate crude oil for September delivery was lately up 39 cents or 0.4% at US$107.26 a barrel.
Iron ore turned lower for the first time in eight sessions. Spot ore for import to China eased $1.60 or 1.1% to US$141.20 per dry metric tonne. Australia's big two iron ore exporters had mixed fortunes in US trade overnight: BHP advanced 0.28% while Rio Tinto fell 1.59%.
A patternless night on industrial metals markets saw copper ease in Europe and rise in the US, while other metals closed mixed. US copper for September delivery was recently up nearly two cents or 0.5% at US$3.36 a pound. In London, copper dipped 0.1%, lead 0.2%, nickel 1.1% and tin 1.5%. Aluminium put on 0.8% and zinc 0.3%.
The major European markets snapped a five-session win streak as trading updates from bellwether companies added to pressures from across the Atlantic. Germany's DAX dropped 0.74%, France's CAC 0.52% and Britain's FTSE 1.59%.
TRADING THEMES TODAY
RETRACE REVS UP: Negative developments overnight, with the S&P 500 making a decisive broke below the 1675/1680 level that has provided support for the last five weeks. The slide arrested near the 50-day moving average, which hopefully will form the basis of a new support level. Otherwise the index could head a lot lower. A retrace was overdue and nothing to fear unless you're over-extended. If nothing else, we can look forward to a return to more attractive entry levels. Precious metals miners provided an island of green in a sea of red in the US overnight, with an index of gold/silver stocks charging 5.54%. Today is likely not a great day to announce earnings but among those in the firing line are STO, DUE, PXS and YAL.
ECONOMIC NEWS: Reserve Bank Assistant Governor Guy Debelle is due to deliver a speech at 11.30am EST. Europe is scheduled to release trade, current account and consumer inflation figures tonight. Another solid night of US data includes building permits, housing starts, preliminary consumer sentiment and inflation expectations, preliminary quarterly non-farm productivity and preliminary quarterly unit labour costs.
