daytrading dec 31 pre-market

Morning traders. Potential 'tin hats' day ahead, or perhaps a sharp reversal - we're hostage to Washington.

Market wrap:

Australian shares are likely to start today's holiday-shortened session sharply lower as US futures signal distress as the clock ticks towards the fiscal cliff deadline without a compromise deal.

The March SPI 200 futures contract slid 22 points or 0.5% to 4624 on Saturday morning following a fifth straight loss on Wall Street on Friday. But this morning's ASX open could be significantly weaker with Dow futures recently trading 226 points in the red.

US politicians were this morning still working on a deal to avert the automatic introduction of US$607 billion of tax increases and spending cuts from midnight tonight. The situation remained highly fluid, with both the Republican-controlled House of Representatives and Democrat-controlled Senate on standby to consider any last-minute deals. President Barack Obama this morning called for compromise, warning of "an adverse reaction in the markets" if a deal remains elusive. Read more here.

US stocks closed a losing week with their fifth straight decline on Friday. All 10 S&P 500 sectors fell as the benchmark index dropped 1.14% for a weekly loss of 1.9%. The Dow lost 158 points or 1.21% and the Nasdaq 0.87%.

Losses accelerated in the final hour of trade as the President stuck to a budget proposal from the week before, confirming fears that the political parties were no closer to a compromise. Wall Street's "anxiety gauge", the VIX, reached its highest level in more than six months as traders anticipated the worst.

Economic data on Friday continued to underline the real economy's resilience to the stalemate in Washington. Pending home sales increased 1.7% last month, business activity expanded for a second month in December and a business measure for the greater Chicago region hit a four-month high.

"The economic outlook is improving but it's awfully hard to see that with the fixation on the fiscal cliff here," the chief market strategist at Ameriprise Financial in the US told Bloomberg. "I'm not sure this market can reflect the underlying fundamentals."

European markets continued to take their cues from Washington. Germany's DAX retreated 0.57%, France's CAC 1.48% and Britain's FTSE 0.49%.

Oil and metals lost ground as the uncertain fiscal outlook capped risk appetite. Oil's decline was cushioned by a smaller-than-expected decline in weekly US inventories. West Texas crude for February delivery dropped 25 cents or 0.3% to $90.62a barrel.

Copper was supported by high expectations for Chinese manufacturing reports today and tomorrow. A Reuters survey showed December factory activity is expected to have been the strongest in eight months. US copper for March delivery eased 0.2% or less than a cent to US$3.59 a pound. In London, copper dipped 0.25%, aluminium 0.8%, lead 0.55%, nickel 0.5%, tin 0.5% and zinc 2.2%.

Gold eased with risk assets. Gold for February delivery lost $6.10 or 0.4% at US$1,657.60 an ounce.

TRADING THEMES THIS WEEK

HOLIDAY WEEK: This week's ASX trading hours are as follows:
Today: early close at 2.10pm EST (including closing auction).
Tomorrow: closed.
Wed-Fri: normal trading hours.

FISCAL CLIFF FOLLIES: Our market has for the last six weeks treated the US fiscal cliff debate as political theatre that would inevitably reach a happy conclusion at the end of the third act. Well, we're late in the third act this morning and still waiting for resolution. If you went long on Friday you may appreciate the closing lines from the original 'Planet of the Apes': "You maniacs! You blew it up! Ah, damn you! God damn you all to hell!" A deal could hit the newswires at any point today and completely change the complexion of the session, but otherwise it looks like we're in for a soft end to a memorable year. MarketWatch is doing a pretty good job of tracking developments in Washington this morning.

CHINESE MANUFACTURING: The turnaround in the Chinese economy is expected to be underlined by twin December factory reports today and tomorrow. The final version of HSBC's private manufacturing PMI is due at 12.45pm EST today and is forecast to come in at around 50.9. The official government report, due tomorrow, is expected to rise to 51, the fastest rate of expansion in eight months.

ECONOMIC NEWS: A holiday-shortened domestic calendar includes: private sector credit (today 11.30am EST); manufacturing index, commodity prices (Wed); and the services index (Fri). Nothing much matters but the fiscal cliff in the US this week, but other highlights include: manufacturing PMI, construction spending (Wed); ADP employment report, weekly jobless claims, minutes from the last Fed meeting (Thu); and non-farm payrolls, unemployment rate, services PMI and factory orders (Fri).


Many thanks to all who looked in here during 2012, especially those who were generous enough to add me to their favourites or thumb up a report along the way. I try not to clutter the thread with endless thanks but you can be sure your support was noticed and appreciated. May the trade winds blow your way in 2013.