A soft end to Wall Street's worst week in two months has Australian shares aiming modestly lower this morning.
The September SPI 200 futures contract retreated seven points or more than 0.1% to 5064 as BHP and Rio Tinto lost ground in US trade as iron ore turned lower for a second session. Most raw materials enjoyed gains.
A downturn in consumer confidence helped push the S&P 500 down five points or 0.32% to a weekly loss of 2.1%, its worst return since mid-June. The Dow slipped 31 points or 0.21% for a five-day loss of 344 points, its heaviest of the year.
Yield stocks remained under pressure as traders prepare for a possible pare-back of the Federal Reserve's stimulus program as early as next month. Telecoms were the worst of the sectors as eight out of ten S&P 500 industry groups dropped. In contrast, the Dow Jones Transportation Average rallied 0.58% and the Morgan Stanley Cyclical Index crept up 0.07%.
"One can't go a day without thinking about what the Fed's policy is going to be because central banks are the elephant in the room," the chief investment strategist at Janney Montgomery Scott in the US told Bloomberg. "I would not be surprised to see a little bit more slop in the equity markets here over the coming days and weeks."
A mixed bag of economic data had minimal impact. Consumer confidence backed off a six-year high as rising interest rates began to bite. The Reuters/UMich preliminary August index dropped to 80 from 85.1 last month. Housing starts improved last month but by less than economists expected. Productivity rose at a better-than-anticipated annual rate of 0.9%.
BHP lost 0.73% and Rio Tinto 0.92% in US trade as iron ore fell for a second day. Spot ore for import to China slid $3.30 or 2.3% to US$137.90 per dry metric tonne.
Reports over the weekend said China will open new free-trade zones to foreign investment to help maintain economic growth. Read more here. Another report showed house prices rose for a third month in July. Read more here. The Shanghai Composite closed 0.67% lower on Friday following wild swings caused by trading errors at the nation's state-controlled brokerage. Read more here.
Silver wrapped up its best week in five years with further gains on Friday as investors sought somewhere to store their wealth while stocks and bonds remain under pressure. Silver for September delivery rallied 25 cents or 1.1% to US$23.19 an ounce for a weekly gain of around 14%. Gold for December delivery put on $14.10 or 1% at US$1,375 an ounce.
"Precious metals were well supported this week as investors bailed out of equities and [Treasuries] on higher prospects of a September stimulus taper," the assistant vice-president of EverBank World Markets in the US told MarketWatch. "The large drops earlier in the year for both gold and silver are now presenting buying opportunities for investors sitting on cash."
Oil closed another turbulent session higher as the deteriorating situation in Egypt continued to pose a risk to oil transportation from the Middle East. West Texas Intermediate crude for September delivery gained 35 cents or 0.3% at US$107.68 a barrel.
Copper marked a 10-week high as industrial metals continued to benefit from recent signs of resilience in the Chinese economy. US copper for September delivery advanced two cents or 0.7% to US$3.36 a pound. In London, copper gained 1.2%, aluminium 2%, lead 2%, nickel 1.8%, tin 1.55% and zinc 2.4%.
European markets closed in positive territory before US stocks turned decisively lower. Germany's DAX edged up 0.19%, France's CAC 0.75% and Britain's FTSE 0.26%.
TRADING THEMES THIS WEEK
EARNINGS: The domestic earnings season has another big week ahead, with reports due from the likes of BHP, FMG, NAB and WPL. Among those reporting this week are: AMC, AZJ, BEN, BSL, CGF, DXS, TRS (today); ANN, ARI, BHP, CCL, CPA, HIL, IVC, MCP, MND, NAB, OSH, QBE, SHL, TGR (tomorrow); ABC, AIO, APA, BLD, CWP, GWA, IIN, ILU, PPX, RIC, SUL, SUN, WPL (Wed); ASX, AWC, BXB, CAB, EGP, ENV, FMG, FXJ, IAG, MOC, ORG, PBG, PNA, SFG, SHV, SVW, SYD, TOL, TTS (Thu); and CWN, LLC, MGR, SGM. (Source: Fairfax)
CHINESE TAILWIND?: News out of China may put a floor under the ASX this week. Weekend reports that foreign investment may be allowed in free trade zones are another signal that the Chinese government is resuming its focus on growth after recent signs of weakness in the economy. Preliminary Chinese manufacturing figures for August are due on Thursday and are expected to show improvement after hitting their weakest point in more than two years in July.
WATCHING THE FED: With US traders fixated on the timing of the Federal Reserve "taper", the highlight of the American week is likely to be the release of the minutes from the last Fed meeting on Wednesday night. These will be analysed in infinite detail for clues to whether the taper will start next month. The rest of the economic data calendar for the week is fairly light. Several big-name retailers are due to report quarterly earnings this week, which - if results last week from Wal-Mart and Macy's are typical - may not be market-friendly.
ECONOMIC NEWS: A light Australian calendar this week includes: new car sales (11.30am EST today); minutes from the last RBA meeting (tomorrow); and leading indexes on Wednesday and Thursday. US highlights include: the minutes from the last Fed meeting, existing home sales (Wed); weekly jobless claims, flash manufacturing (Thu); and new home sales (Fri).
