Market wrap: Futures traders expect a flat start to ASX trade as gains in key commodities offset solid falls in US and European shares on Friday.
The September SPI futures contract closed 3 points or 0.1% stronger at 4072 on Saturday morning amid speculation that the sharp sell-off on the ASX on Friday pre-empted overseas falls. Oil and most metals rallied on Friday night, boosting prospects for Australian miners today.
US and European stocks fell for a second night as Germany stepped up its opposition to joint 'euro-bonds' and JP Morgan Chase and Citigroup reduced their growth outlooks for the US. The Dow slid 173 points or 1.57% to cap its fourth straight weekly loss. The S&P 500 lost 1.5%, with tech and financial stocks the main drags, while the Nasdaq gave up 1.62%.
"The market is trading off of really primal fear," the managing director of institutional sales at Knight Capital in the US told Bloomberg. "There's fear that Europe represents a risk to the global markets, there's fear of a recession. This is a very policy-driven approach to pricing amid a lack of enthusiasm on the part of the Europeans, specifically the Germans, not willing to assume any more risk. The reason that the market is not selling off more broadly today goes back to the sense that valuations beg for attention."
US shares appear cheapest since the end of the GFC, as measured by price-earnings ratios. The S&P 500's 18% decline since this year's peak on April 29 has left the average PE ratio at 12.3, compared with the long-term average since 1954 of 16.4.
Commodities found some support from a weaker US dollar on Friday. Oil advanced for the third session in five but still ended the week more than 3% weaker. On Friday, oil for September delivery gained 33 cents or 0.4% at US$82.71 a barrel.
Silver hit its highest level since May and gold's record run continued. Gold for December delivery surged $33.30 or 1.8% to US$1,855.30 an ounce after earlier setting a new intraday record at US$1,881.40 an ounce. Silver for September delivery charged $2.24 or 5.5% to US$42.93 an ounce.
Most industrial metals pared weekly losses as analysts pointed to hints of buying interest after recent falls. "There are some small signs of a little bit of strength," an analyst with Mitsui Bussan Commodities in the US told Reuters. "The Baltic Dry Index is up over its 50- and 100-day moving averages... It may be reflective of some interest out of China."
In London, copper advanced 0.5%, aluminium 0.6%, lead 0.3%, tin 1% and zinc 0.8%. Nickel fell 0.6%. US copper put on 0.3%.
The major European markets declined, with bank stocks remaining under pressure amid global growth and sovereign debt worries. Britain's FTSE fell 1.01%, Germany's DAX 2.19% and France's CAC 1.92%.
TRADING THEMES THIS WEEK
TESTING SUPPORT: A crucial week lies ahead for the near-term direction on equity markets. The benchmark US indexes ended last week very close to support at the 10-month lows set earlier this month. Any breach of support is likely to see another downleg on world markets. Our market will start the day more than 110 points above this month's closing low and will have some catching up to do if Wall Street continues to retreat. Our futures appear optimistic, relative to Friday's overseas performance but I'll be happy to be proved wrong.
JACKSON HOLE: This time last year Federal Reserve Chairman Ben Bernanke used the annual gathering of central bankers at the Jackson Hole Symposium in the US to announce a second round of quantitative easing. The launch of "QE2" added liquidity to world equity markets that fuelled months of gains. World markets will be on tenterhooks this week to see what - if anything - Bernanke has up his sleeve for this year's gathering, which starts on Friday.
CHINESE MANUFACTURING: Manufacturing activity in our biggest trading partner slumped to a 28-month low last month, so this indicator, due at lunchtime tomorrow AEST, will be closely watched for signs of further deterioration.
ECONOMIC NEWS: A light week lies ahead for domestic economic news and there's not a great deal going on in the US until the end of the week. The domestic calendar is empty today; Reserve Bank Deputy Governor Ric Battellino addresses an 'Economist's Bellwether' gathering tomorrow; Wednesday brings the leading index and quarterly construction work; and on Friday Reserve Bank Governor Glenn Stevens testifies before the House of Representatives Standing Committee on Economics. This week's highlights in the US are likely to be: new home sales (tomorrow night); durable goods orders (Wed); weekly jobless claims (Thu); and GDP, consumer sentiment and the Jackson Hole symposium (Fri).
