Australian shares face a soft open after commodities and European shares retreated overnight and a late rebound on Wall Street faltered.
The March SPI 200 futures contract ended the night session six points or 0.1% weaker at 4961 as US stocks pared sharp initial losses spurred by weak manufacturing and jobs news.
The S&P 500 fell as much as 15 points and dipped below 1,500 before an afternoon rally cut its final loss to 10 points or 0.66% at 1,502. The Dow trimmed a 96-point slide to 47 points or 0.33% and the Nasdaq lost 1.06%. The declines extended Wednesday's losses, the heaviest since November, as traders digested an increasingly uncertain outlook for the Federal Reserve's quantitative easing program and disappointing overnight economic news.
"Typically after the run we've seen I wouldn't be surprised by a pullback in the 3% to 5% range," Schwab director of market and sector research Brad Sorensen told MarketWatch. "We probably needed a bit of a sell-off to get some of the speculative money out of there."
A heavy schedule of US economic data overnight included improved house sales and leading economic indicators but also a rise in benefit claims and a slump in regional manufacturing. First-time claims for jobless benefits increased by 20,000 to 362,000 last week. The Philly Fed's measure of manufacturing activity fell to -12.5 this month from -5.8 in January. Sales of existing homes inched up 0.4% in January and leading economic indicators improved for a second month.
The sudden change in market mood was underlined by another rise in the VIX, Wall Street's "anxiety gauge", following its biggest jump in more than a year on Wednesday. The index was lately up 3.75% after spiking 19% the session before. Other traditional measures of risk appetite kept pace with falls in the broader market - the Russell 2000 index of small caps fell 0.89% and the Dow Jones Transportation Index lost 0.78%.
European markets thudded lower as a composite purchasing managers' index appeared to indicate the euro-zone's economic downturn deepened this month. The preliminary composite PMI sagged to a two-month low of 47.3 from 48.6 in January. Germany's DAX slumped 1.87%, France's CAC 2.29%, Britain's FTSE 1.62%, Italy's FTSE MIB 3.13% and Spain's IBEX 35 1.81%.
Resource stocks were once again hit hardest in the US as iron ore swaps plunged in Shanghai, copper hit its low for the year and oil a three-week bottom. BHP fell 2.71% and Rio Tinto 2.91% in US trade as Chinese moves to rein in its property market dulled the outlook for raw materials. The March iron ore contract dropped 2.6% to US$148.50 per dry metric ton in London, according to Bloomberg.
A resurgent US dollar helped push oil down another 2% despite a draw-down in weekly US petrol inventories. West Texas crude for April delivery was lately down $2.23 or 2.3% at US$93.01 a barrel.
Base metals trade in London played catch-up with Wednesday's steep declines in the US. In London, copper dropped 1.3%, aluminium 1.3%, lead 1%, nickel 3.15%, tin 2.7% and zinc 1%. US copper for March delivery was recently down another five cents or 1.3% at US$3.56 a pound.
Gold pared early losses to end the session little changed as the night's disappointing economic reports encouraged some haven buying. Gold for delivery in April was recently down $1.60 or 0.1% at US$1,576.40 an ounce. March silver eased two cents or 0.1% to US$28.61 an ounce.
TRADING THEMES TODAY
DOWN BUT NOT OUT: A glass half-full night on Wall Street, with something for both bulls and bears. The market extended Wednesday's falls but there was a hint of a bounce, even if it wasn't sustained. This pullback likely has further to run - the sequestration issue in Washington has barely had a mention yet and March 1 is looming - so I won't be looking for overnight holds yet. However, weakness brings intraday buying opportunities in the right sectors where the selling gets overdone. Goldies offered good trades yesterday and may see some tentative buying today. Oilers likely will see more selling. The spec end held up fairly well yesterday but risk appetite was likely shaken by yesterday's events. The market is rarely a one-way bet for as long as it has been since November.
COMPANIES REPORTING: A huge week for corporate profit reports concludes today with results from the likes of Santos, Crown and Billabong. Other substantial companies on today's list include Macquarie Atlas Roads, Sims Metal Management, Platinum Asset Management, Investa Office Fund, BrisConnections Unit Trusts and NRW Holdings. (Source: Fairfax) More companies here.
ECONOMIC NEWS: Reserve Bank Governor Glenn Stevens; is due to testify before the House of Representatives Standing Committee on Economics from 9.30am EST. Europe has Ifo German business climate data due tonight. In the US, separate speeches by two Fed members may attract more interest than usual as traders look for clues to next month's meeting.
