daytrading dec 4 pre-market

Morning traders.

Market wrap:

An unexpected contraction in US manufacturing pulled Wall Street lower overnight, pointing to a soft start to Australian trade.

The December SPI 200 futures contract ended the night session 14 points or 0.3% weaker at 4536 as US stocks faded into the close and key commodities pared early gains.

Wall Street opened higher on the back of yesterday's upbeat Chinese data, but quickly rolled over as traders fretted that deteriorating factory output last month indicated the fiscal cliff stand-off is hurting the economy. The S&P 500 lost 0.51%, closing near its low for the session. The Dow turned a 60-point rally into a loss of 60 points or 0.46% and the Nasdaq slipped 0.27%.

The declines followed a weekend of finger-pointing by both sides of the political divide in the US over the lack of progress in negotiations over a US$607 billion package of tax increases and spending cuts due to come into force on January 1. Treasury Secretary Tim Geithner insisted increased taxes on the top 2% of earners will be part of any deal, while Republican House Speaker John Boehner claimed the White House has yet to make a serious offer.

"Markets have lately been more optimistic than what the reality of the [fiscal cliff] negotiations seems to be, and the reality of that may be starting to set in," the chief investment officer at Lenox Wealth Advisors in the US told Reuters. "Until the cliff gets resolved, market upside may be capped while the downside isn't constrained."

A gauge of manufacturing in the US slumped to 49.5 last month from 51.7 in October, heightening fears that the political deadlock is starting to stifle business activity. Economists surveyed by MarketWatch had predicted the index would hold steady at 51.7%. Read more here.

The disappointing manufacturing result overshadowed a separate report showing construction spending jumping 1.4% in October, well above expectations, and twin Chinese reports that suggested factory activity in the world's second biggest economy has bottomed.

European markets clung to gains after the euro-zone manufacturing gauge reached its highest level in eight months, despite a 16th straight month of contraction. Also helping sentiment was an offer from Greece to buy back 10 billion euros in borrowings from private lenders to reduce its debt mountain. Germany's DAX advanced 0.4%, France's CAC 0.27% and Britain's FTSE 0.07%.

Copper hit a six-week high following the Chinese data. US copper for December delivery was recently up one cent or 0.2% at US$3.66 a pound. In London, copper put on 0.2%, aluminium 1.15%, lead less than 0.1% and tin 0.1%. Zinc lost 0.4% and nickel 0.8%.

"The US manufacturing data feeds expectations that the Federal Reserve will announce a fourth round of quantitative easing on December 14, and the Chinese manufacturing data suggests the rally [in copper] could continue... in the next few days," a T-Commodity consultant told Reuters. "However, I am a bit worried about the Shanghai composite index, which continues to lose ground. It has a high correlation with copper prices, so I think the rally is still vulnerable."

Gold rallied as the US dollar dipped and fiscal cliff negotiations offered little cause for optimism. Gold for February delivery was lately up $4.60 or 0.3% at US$1,717.30 an ounce.

Oil broke back above US$90 a barrel but couldn't hold its gains as fiscal cliff concerns offset China's manufacturing pick-up and tensions in the Middle East. West Texas crude for January delivery was recently up 19 cents or 0.2% at US$89.09 a barrel after running as high as US$90.33.

TRADING THEMES TODAY

RATE HOPES V FISCAL CLIFF: Markets appear to have got ahead of themselves in discounting the possibility that the ideologues in Congress will drive the US economy off the fiscal cliff. Weekend events reminded US investors that the two sides are as far apart on budget talks as ever. The Republicans this morning released a budget plan that ignores income tax increases on the wealthy and will almost certainly be rejected by the White House. Read more here. Having rallied on China yesterday, our market has a bit to give back this morning. However any retreat will be cushioned by the possibility of a rate cut this afternoon (see below). Two additional issues worth noting: the Shanghai Composite hit a four-year low yesterday and the Small Ords has significantly trailled rises in the broader indexes, suggesting risk appetite is weak. Yesterday's afternoon thread here was the quietest I can recall in recent times.

RATE DECISION: A strong session for the blue chips yesterday despite lousy economic news suggests many in the market expect the silver lining to be a cut to the cash rate this afternoon. With the next Reserve Bank meeting two months away in February, yesterday's grim reading is expected to force the bank to lower the cash rate by 25 basis points to 3%. The new rate and rate statement will be posted here at 2.30pm EST. The odds on a rate cut reached 88% yesterday, according to the ABC.

ECONOMIC NEWS: Monthly building approvals and current account figures are due at 11.30am EST, but the day's big event is the RBA rate policy meeting at 2.30pm (see above). Europe's Economic and Financial Affairs Council meets tonight. There's a break in the flow of US economic news tonight - nothing significant scheduled.

Good luck to all.