Daytrading August 26 pre-market

Morning traders. Thanks Trees and after-market regulars.

Market wrap:

Shares look set to pare yesterday's relief rally at the open after a strong rebound on Wall Street collapsed in the final hour, pushing US stocks to a sixth straight loss.

The September SPI200 futures contract ended the night session 47 points or 0.9% lower at 5080 after a range of Chinese measures to restore confidence in its economy failed to arrest the worst volatility in financial markets since 2008.

The S&P 500 rallied as much as 2.9% in early trade after China cut rates, boosted liquidity and lowered bank capital requirements, but the benchmark US index ended the session in a vicious dive, closing 26 points or 1.35% in the red. The Dow gave up 205 points or 1.29% after being 441 points ahead. The Nasdaq shed 20 points or 0.44%.

“Unlike the pullback last October, this correction has a serious tone to it," Michael Antonelli, equity sales trader at RW Baird in the US, told MarketWatch. "There are serious global growth issues that are not going to be resolved any time soon. We expect the correction to last longer."

Earlier, European markets closed 3-5% higher after the Chinese government responded to further heavy losses on the Shanghai Composite yesterday with a string of announcements. The People's Bank of China cut its key lending rate by 25 basis points to 4.25%, reduced the amount of cash that banks must retain and injected 150 billion yuan into the financial system. Read more here. The moves followed a 7.63% plunge on the Shanghai Composite yesterday.

European markets recouped most of Monday's falls, the heaviest in almost seven years. The Stoxx Europe 600 rallied 4.2%, Germany's DAX 4.97%, France's CAC 4.14% and Britain's FTSE 3.09%.

While US equity futures rallied with the Chinese news, the market opened lower than futures implied and began to fade before mid-day. Selling accelerated over the final hour.

"This is typical after a wild swing we had yesterday," Peter Cardillo, chief market economist at Rockwell Global Capital in the US, told CNBC. "It's just going to take some time for confidence to rebuild in the market."

The session also included US economic data that appeared to bolster the case for raising rates next month. A gauge of consumer confidence rose from 91 last month to 101.5, the second strongest reading since the GFC. House sales bounced 5.4% last month, reversing most of a 7.7% decline the previous month. House prices ticked up 1% in June.

BHP and Rio Tinto rallied from six-year lows in the US. BHP gained 2.3% and Rio Tinto 0.47%. Spot iron ore for import to China held steady yesterday at US$53.30 a dry ton.

Gold stocks suffered further sharp falls. The NYSE Arca Gold Bugs index lost 4.34% as gold dipped towards a one-week low. Gold for December delivery settled $15.30 or 1.3% lower at US$1,138.30 an ounce as some of the 'fear premium' came out of the market.

The US energy ETF declined 1.45% despite a rebound in crude. West Texas Intermediate for October delivery settled $1.07 or 2.8% higher at US$39.31 a barrel amid speculation that Chinese demand will respond to lower interest rates.

Short covering swept base metals higher as the Chinese news broke. In London, copper rallied 2.3%, aluminium 1.7%, lead 1.3%, nickel 1%, tin 1.4% and zinc 1.9%. US copper for September delivery was recently up 1.6% at US$2.30 a pound.

The dollar was this morning buying 71.3 US cents.

TRADING THEMES TODAY

MIXED SIGNALS: Tricky session ahead after a promising night overseas ended in disappointment. China wheeled out the heavy artillery and for a time it looked like it had worked - European markets snapped back, commodity prices responded and Wall Street started the night in fine fettle. However, the US rally never gained momentum and soon stuttered. The last-hour plunge was a signal that this retrace likely has further to run, in the US at least. Where does that leave us? Hmmm... Obviously we'll have to hand back some of yesterday's gains at the open. After that, it's anyone's guess. Much will depend on whether Chinese shares respond to yesterday's news. Any signs of stability there will help here. Japan was also a worry yesterday, losing 3.96%. I've had a clear expectation for the market direction during most of this retrace, but today anything seems possible - up, down, sideways. Only advice is to maintain an open mind and respond quickly to market signals. Good luck to all.

ECONOMIC NEWS: RBA Governor Glenn Stevens is due to address the National Reform Summit in Sydney at 10.05am EST. Quarterly construction data are due at 11.30am. Tonight's US highlights include durable goods/core durable goods, crude oil inventories and a speech by a Fed official.