Market wrap: Australian stocks are pointed sharply lower after US and European equities and key commodities sold off ahead of tonight's European Union summit.
The December SPI 200 futures contract ended the night session 67 points or nearly 1.6% weaker at 4216 as the European Central Bank dampened expectations that it will continue to buy debt from Europe's beleaguered debtor nations.
The S&P 500 endured a toboggan ride, closing 2.11% lower and near its session low. The Dow fell 199 points or 1.63% and the Nasdaq lost 1.99%.
The European Central Bank cut interest rates by 0.25% to 1% and said it will fund the euro-zone's struggling banks for three years, but investors were more concerned by what the bank said it won't do. President Mario Draghi warned that the bank will not automatically buy the bonds of debt-strapped nations if the EU tonight approves new austerity measures and tighter fiscal union. The remarks dashed hopes that the ECB was emerging as a buyer of last resort for Europe's most indebted nations. Also troubling the market was news that Europe's banks need to raise even more capital than first suspected.
European markets swiftly gave up their gains following the ECB press conference. Britain's FTSE fell 1.14%, Germany's DAX 2.01% and France's CAC 2.53%.
Events in Europe once again overshadowed signs of improvement in the US economy, where weekly jobless claims fell to a 10-month low. The number of people filing for unemployment benefits for the first time last week fell 23,000 to a seasonally-adjusted 381,000.
"We have two positives and a question mark," the chief market strategist for JPMorgan Funds in the US told Bloomberg. "The unemployment claims show the US continues to decouple from Europe's problems. The second thing is the ECB's further commitment to stabilise the bank system. The question mark is left to European leaders. We need to see more of a commitment to enforce fiscal discipline and a plan for economic growth."
A rally in the US dollar sent oil, copper and gold to their lowest levels in more than a week. Oil suffered another of the sharp sell-offs that has characterised its trading behaviour since it cracked US$100 a barrel. Light, sweet crude for January delivery was lately off $2.52 or 2.5% at US$97.98 a barrel.
"The comments from the ECB set the tone for weakening across markets," an oil analyst in the US told MarketWatch. "We are just seeing a de-risking phase today."
Gold fell to its lowest level this month after the ECB press conference dashed expectations that Europe will fire up the printing presses by buying bonds, effectively devaluing the euro and making precious metals a more attractive store of wealth. Gold for February delivery was recently down $32.80 or 1.9% at US$1,712 an ounce.
Most industrial metals fell in a general retreat from risk assets. In London, copper dropped 1.45%, aluminium 0.8%, lead 2.1%, tin 1.95% and zinc 1.4%. Nickel put on 1.05%. US copper was recently off 2%.
TRADING THEMES TODAY
DE-RISKING: The US oil analyst quoted above summed up the night's action very well: de-risking ahead of tonight's European Union economic summit. World markets have come a long way in the last two weeks and ultimately their direction from here depends on most of the motley crew who got Europe into this mess in the first place. Seems to me that the risk of disappointment tonight is greater than the likelihood that Sarkozy, Merkel and crew are going to wave a magic wand. I've sold any medium-term holdings into this rally and will stick to intraday rebound trades today, if they present.
FURTHER SLOWING IN CHINA?: Today brings another insight into the recent gentle moderation in the biggest consumer of Australian raw materials. The monthly economic bulletin is due at 12.30 pm AEST, including consumer inflation, industrial production and retail sales. Economists expect modest declines in all three figures, indicative of a "soft landing" to China's recent boom. Our market will be on edge for anything that suggests an acceleration in the recent slowdown.
ECONOMIC NEWS: No domestic news scheduled today. China delivers its monthly economic round-up at 12.30 pm AEST (see above). All eyes tonight will be on the European Union Economic Summit. The US schedule includes the trade balance, preliminary consumer sentiment and preliminary inflation expectations.
