Australian shares are pointing lower for a third day after intensifying Federal Reserve "taper" talk helped pull US stocks further off record levels.
The September SPI 200 futures contract ended the night session 19 points or 0.4% in the red at 5041 as two more Fed officials warned that the central bank could start to wind back its stimulus program as early as next month.
All 10 industry groups in the S&P 500 lost ground as the index dropped 10 points or 0.59% to 1,697. The decline was the benchmark's largest in six weeks. The Dow lost 93 points or 0.6% after earlier falling as much as 139 points. The Nasdaq eased 0.73%.
With a shortage of economic news this week and the corporate earnings season winding down, US traders remained fixated on the timing of the so-called "taper", when the Federal Reserve starts to reduce its US$85 billion-a-month bond-buying program. Overnight, pro-QE Fed official Charles Evans said improved economic data meant the bank may start to reduce its buying next month and cease by the middle of next year. Dennis Lockhart, the president of the Atlanta Federal Bank, said tapering could start at any of the three remaining Fed meetings this year.
"It's more of this taper tempest that we seem to go into," a managing executive for investments at PNC Wealth Management told MarketWatch. "The market gets a little confused. It seems fine as long as the talk around taper is around data, but it gets flustered when you talk about the calender."
The night's only substantial US economic report showed the trade gap narrowed more than anticipated in June, raising expectations for second-quarter GDP to be stronger than initially expected. The deficit was US$34.2 billion, down from US$44.1 billion in May and well below expectations of US$43 billion.
Trading volumes remained below average in light northern summer trade. Monday's volume was the lowest of the year. Cyclical stocks led the retreat. The Morgan Stanley Cyclical Index slipped 1.4% and the Dow Jones Transportation Average lost 1.28%.
Raw materials, financials and industrials were the worst of the S&P 500 industry groups. Rio Tinto dropped 1.65% and the BHP lost 0.41% in US trade despite a third straight advance in the price of iron ore yesterday. Spot ore for import to China rallied $1.20 to US$131.40 per dry metric tonne.
Gold declined for a sixth night on the prospect of an imminent end to the Fed's inflationary stimulus program. Gold for December delivery was lately down $20.10 or 1.5% at US$1,282.30 an ounce.
Oil followed the stock market lower after Iran's new president said he was willing to enter "serious" negotiations over his country's nuclear program. West Texas Intermediate crude for September delivery was recently off 83 cents or 0.8% at US$105.71 a barrel.
Copper bucked the downtrend during a mixed night for base metals ahead of tomorrow's monthly Chinese economic update. US copper for September delivery was recently up a cent or 0.3% at US$3.18 a pound. In London, copper advanced 0.4% and tin 0.1%. Aluminium retreated 0.6%, lead 0.5%, nickel 1% and zinc 0.6%.
European markets followed Wall Street lower, with mining stocks leading declines. Germany's DAX fell 1.17%, France's CAC 0.42% and Britain's FTSE 0.24%.
TRADING THEMES TODAY
RETRACE CONTINUES: Wall Street continued to pull back overnight in the absence of any substantive reason to continue the six-week rally since the benchmark index reversed in late June. For all the talk of tapering, so far this looks like a standard retrace with a bit of profit taking after a big move. With many traders on leave, trading volumes are low, exacerbating changes. The ASX will likely come under mild pressure today. Gold miners will be in the firing line after a 5.23% slump in an index of US precious metals miners. Most biotechs were weak in the US but arguably not by enough to sound alarms here. The NASDAQ Biotechnology Index slipped 2.11%. Some of the heat seemed to come out of the specs here yesterday - let's hope the cool-down is temporary.
ECONOMIC NEWS: The monthly construction index is due at 9.30am EST, followed by home loans at 11.30am. Europe releases German industrial production data tonight and British inflation. The light run of US data this week continues tonight with consumer credit and crude oil inventories.
