The share market faces its first setback in weeks following sharp falls in US stocks and key commodities as the Federal Reserve hinted at ending the era of ultra-loose monetary policy.
The March SPI 200 futures contract closed the night session 25 points or 0.5% weaker at 5048 as futures traders bet that solid domestic earnings will cushion the market from the worst of the overseas selling.
A weak night on Wall Street soured further after the Fed said it will review its quantitative easing program at its meeting next month. Mining stocks led the retreat as the S&P 500 sagged 1.24% and the S&P GSCI Spot Index of raw materials declined 1.3% amid speculation a hedge fund was liquidating holdings. The Dow dropped 108 points or 0.77% and the Nasdaq lost 1.54%.
Traders were spooked by the threat of an early end to the Federal Reserve's stimulatory asset-buying program as the minutes from the last meeting showed a committee deeply divided. Several members expressed concern about the escalating cost and risk of the current US$85 billion per-month bond-buying program, which the Fed has previously stated would run until unemployment falls below 6.5%.
"The minutes... show a committee that is far less unified than at any other time in the past few years," an economist at TD Securities told MarketWatch.
The market was under pressure before the afternoon release of the minutes following heavy selling in commodities including oil and metals. A rise in the price of iron ore yesterday to a 16-month high at US$158.90 per tonne was not enough to shield Australia's big two miners from the down-draught. BHP cratered 4.23% in US trade and Rio Tinto lost 3.83%.
"You have a sort of mini perfect storm hitting commodities today," the head of exchange-traded fund trading and strategy at Stifel Nicolaus in the US told Bloomberg. "There's market chatter that a fund is blowing up, gold has fallen below US$1,600, and oil storage tanks [in the US] are near all-time records."
Gold plunged to a nine-month low as the prospect of an end to the Fed's inflationary asset buying exacerbated technical selling following a so-called "death cross". A bullion analyst described a death cross to MarketWatch as "a crossover resulting from a security's long-term moving average breaking above its short-term moving average or support level". Gold for April delivery was lately down $40.70 or 2.5% at US$1,563.50 an ounce after earlier falling below US$1,560. March silver slumped 94 cents or 3.2% to US$28.49 an ounce.
Oil sagged 2% as large block trades aroused suspicion about fund selling ahead of the March contract expiration at the end of the session. West Texas intermediate crude for March delivery was recently off $1.89 or 2% at US$94.77 a barrel, off a low of $93.92.
Industrial metals continued to retreat in London as Chinese buying remained subdued. US copper for March delivery was recently down five cents or 1.4% at US$3.60 a pound. In London, copper gave up 1.1%, aluminium 0.45%, lead 1.6%, nickel 2.2%, tin 0.8% and zinc 0.9%.
European markets were mixed as consumer confidence data improved less than expected and traders looked ahead to weekend elections in Italy. Germany's DAX fell 0.3%, France's CAC lost 0.69% and Britain's FTSE added 0.25%.
TRADING THEMES TODAY
EARNINGS V COMMODITIES ROUT: Seatbelts on for a bumpy ride. Last night's plunge may be the start of the long-awaited market correction or just another buying opportunity. Time will tell. However, US stocks closed at their overnight lows and that doesn't bode well for the rest of this week. We can expect significant selling across the resources sector today, with precious metals miners likely to cop it hardest. Oil is off its lows and industrial metals dodged the worst because the London Metal Exchange closed before the Fed minutes were released - barring a change in sentiment, their turn will come tonight. With a chill wind blowing from overseas, our best hope of a hand-brake today is strong earnings from the likes of Qantas, Fairfax, IAG and AMP. See below for more detail. This market has been incredibly resilient this year, so anything is possible.
COMPANIES REPORTING: Another monster swag of corporate earnings is due today, including household names names such as AMP, ASX, Qantas, IAG, Origin Energy, Tatts and Fairfax. More detail here.
ECONOMIC NEWS: No significant domestic news scheduled today. China releases a leading index of economic indicators at 1pm EST. Europe releases manufacturing and services data tonight. A heavy schedule in the US includes: consumer price index/core CPI, weekly jobless claims, existing home sales, Philly Fed Manufacturing Index, flash manufacturing PMI, leading index, mortgage delinquencies and crude oil inventories.
