Market wrap: Global recession fears fuelled another panic-plunge on overseas markets overnight, driving Australian futures deep into the red.
The September SPI futures contract ended the night session 103 points or 2.4% weaker at 4116 as European and US stocks cratered and oil tumbled more than 7%.
The Dow fell more than 400 points for the fourth time this month, closing 420 points or 3.68% weaker as a night of grim news from Europe and the US stoked fears that key global economies are sliding back towards recession. The S&P 500 fell 4.46% and the tech-heavy Nasdaq tumbled 5.22% after computer-maker Hewlett-Packard slashed its sales forecast. Wall Street's "fear gauge", the VIX, jumped 35%. In Europe, Britain's FTSE slumped 4.49%, Germany's DAX 5.82% and France's CAC 5.48%, with bank stocks once again bearing the brunt of the selling.
Investors fled risk assets amid a steady drip-feed of negative news. Morgan Stanley cut its outlook for global growth, warning the US and Europe are "dangerously close to recession" and blaming policy-makers for mishandling the situation. The Wall Street Journal reported that US regulators have intensified their oversight of US branches of European banks to assess their vulnerability. Meanwhile, Sweden's financial regulator said Swedish lenders must do more to safeguard against a worsening of Europe's debt crisis.
The closely-watched Philadelphia manufacturing index in the US contracted to -30.7, its lowest level since the end of the GFC and much worse than analysts expected. US house sales declined last month. Inflation rose. Weekly jobless claims ticked up.
A handful of hopeful economic signals were swamped by the bad news. A leading index of US economic indicators improved more than expected last month and the four-week average of jobless claims eased.
"The massive exodus from risk markets reflects heightened concerns with a possible recession and the accelerated loss of trust in policymakers," the chief executive officer at Pacific Investment Management told Bloomberg. "Importantly, such worries will now be compounded by concerns about technical damage to key markets. The risk is of a rapidly deteriorating negative feedback loop of weakening fundamentals, inadequate policies and bad technicals."
Sectors most exposed to global growth were hit hardest in the US. Energy suffered the biggest decline on the S&P 500, but banks also suffered heavy falls. In US trade, BHP fell 5.45%, Rio Tinto 6.6% and Alumina 11.4%.
Oil erased nearly two weeks of gains and gold marked a new record as investors swapped risk assets for havens. Crude for September delivery was recently off $6.21 or 7.1% at US$81.38 a barrel.
Gold established a new intraday record high at US$1,829.70 an ounce and is now up more than 10% for the month. Gold for December delivery was recently ahead $33.70 or 1.9% at US$1,827.50 an ounce. September silver added 29 cents or 0.7% at US$40.65 an ounce.
Industrial metals were dumped in the general retreat from risk. In London, copper lost 2.3%, aluminium 2.3%, lead 2.8%, nickel 2.8%, tin 4.8% and zinc 2.2%. US copper was recently down 2.3%.
TRADING THEMES TODAY
BATTEN THE HATCHES: To state the obvious, the recent volatility ain't over. Fear and panic stalked overseas markets again overnight and that's a bad sign for the short-term outlook here. A re-test of the recent lows on world markets appears likely and much sooner than we might have anticipated. Our market yesterday pre-empted an overnight fall but nothing like the wave of selling that swept Europe and the US. Defensive sectors such as utilities and precious metals miners fared best in the US but still finished in the red. Time to check your exposure and stay nimble.
ECONOMIC NEWS: Given the general trend in economic reports lately, it's a relief that a busy week ends with very few scheduled reports today. Nothing listed here and only a speech from a member of the Federal Reserve tonight in the US.
