Shares are aiming lower after Wall Street broke its longest rally since August as a federal budget stand-off overshadowed solid economic data and positive developments in Europe.
The December SPI 200 futures contract ended the night session seven points or 0.2% weaker at 4583 as profit-taking sank commodity markets and US stocks ended a six-session winning run.
Enthusiasm for a drop in jobless claims and a rebound in retail sales quickly gave way to familiar concerns over the fiscal cliff as Republican and Democrat leaders used separate press conferences to blame each other for a stalemate in budget negotiations. Energy stocks led the sector losses on the S&P 500 as the index declined 0.66%. The Dow fell 74 points or 0.56% and the Nasdaq lost 0.72%.
"We've had good economic data yet people are still anxious to see what comes out of the negotiations in Washington," the co-chief investment officer at Oakbrook Investments in the US told Bloomberg. "We'll see a range-bound market until we get something definitive."
New claims for unemployment benefits dropped towards a four-year low last week as the effects of Hurricane Sandy unwound. Claims declined 29,000 to a seasonally-adjusted 343,000. The last time claims were under 340,000 was 2008. Retail sales rebounded by 0.3% last month, erasing a similar decline in October. Inflation remained benign, with wholesale prices sliding 0.8% in November as energy prices declined.
Stocks continued to dance to the latest budget sound-bites, falling for much of the session after Republican House Speaker John Boehner blamed the White House for not cutting spending, then paring losses following reports that Boehner will meet President Barack Obama this morning to continue negotiations.
The major European markets struggled for traction despite positive outcomes at the latest meeting of European finance ministers. Euro-zone finance ministers approved the latest tranche of bailout funds for Greece and reached a deal to give the European Central Bank oversight over the region's largest banks. Germany's DAX retreated 0.43%, France's CAC 0.1% and Britain's FTSE 0.27%.
Silver led a rout in metals as speculators who had "bought the rumour" of more Federal Reserve monetary easing "sold the news" following yesterday's announcement of a fresh round of bond-buying. The March silver contract was lately down $1.39 or 4.1% at US$32.40 an ounce. February gold futures were $19.50 or 1.1% weaker at US$1,698.40 an ounce.
"There's definitely an element of 'selling the news' today," the chief economist at BullionVault in the US told MarketWatch. "The Fed's announcement that it will buy US$45 billion of Treasury bonds a month was heavily trailled, so it's hard to see how it wasn't priced in. What was less expected was the change in guidance to include the 6.5% unemployment rate target. We are way above that now, so this is a clear signal that the Fed plans to hold rates close to zero for a good while yet."
Industrial metals also lost ground, although the declines were more restrained. US copper for March delivery was recently off five cents or 1.2% at US$3.67 a pound. In London, copper fell 0.7%, aluminium 0.6%, lead 0.8%, tin 0.7% and zinc 0.1%. Nickel was unchanged.
Oil reversed some of Wednesday's 1.1% gain amid general overnight weakness in risk assets. West Texas crude for January delivery was recently down 56 cents or 0.65% at US$86.22 a barrel.
TRADING THEMES TODAY
PULLING BACK: The ASX has been strong as an ox for the last month, stacking on roughly 270 points from the November low to Wednesday's high. In other words, it has come a long way in a short time. Some sort of consolidation can be expected, perhaps a retrace towards the 4500 level to recharge the batteries for another up-leg if/when the fiscal cliff nonsense gets sorted out. That said, US traders perked up when they heard Obama and Boehner were meeting at 5pm Washington DC time - any rumours/news from that meeting could completely turn the session on its head. There is also Asian economic data this morning that could change the course of the day (see below). Precious metals miners copped it in the US overnight and may see pressure here today. Defensive sectors dodged the worst of the selling on Wall Street and have haven appeal here.
ASIAN DATA ON TAP: There are two pieces of potential market-moving economic data in Asia today: Japan's Tankan indexes at 10.50am EST and China's preliminary December manufacturing report at 12.45pm. I don't mention Japanese data often here because the Nikkei's movements seem to have minimal impact on the ASX. However, the Tankan manufacturing and services indexes are taken seriously outside of Japan and are worth noting. Expectations for both indexes today are weak. HSBC's flash manufacturing purchasing managers' index, on the other hand, is expected to continue the recent trend of improving data from China. Last month's reading was 50.5.
ECONOMIC NEWS: No significant domestic data scheduled today. See above for Asian data. Europe releases manufacturing, services and inflation figures tonight. The European Union wraps up a two-day economic summit. Highlights tonight in the US include the consumer price index/core CPI, flash manufacturing, industrial production and capacity utilisation rate.
