Shares are pointing lower after soft Chinese factory data helped drive Wall Street's blue chip index to a five-week low.
The March SPI 200 futures contract sank 30 points or 0.6% to 5198 as a mixed batch of US economic news and corporate earnings failed to offset nerves over a contraction in Chinese manufacturing.
The S&P 500 dropped 17 points or 0.91% with materials, energy and financials companies pacing the losses. The Dow lost 176 points or 1.08%, closing at its lowest level since before Christmas following three days of declines. The Nasdaq gave up 0.57%.
Preliminary figures released yesterday showed Chinese manufacturing activity contracted this month for the first time in six months. HSBC's flash purchasing managers' index dropped to 49.6 from a reading of 50.5 in December.
"China has been the growth story for the better part of 10 or 15 years, and all of a sudden we're starting to see contraction," Chris Bouffard, chief investment officer of the Mutual Fund Store in the US, told Bloomberg. "That's going to take a while for market participants to get comfortable with."
The news sparked a sell-off in assets exposed to Chinese growth, including resources, such as copper and iron ore, and resource stocks. BHP lost 2.22% in US trade and Rio Tinto 1.11%. Spot iron ore for import to China declined 40 cents to US$123.90 a dry tonne. US copper for March delivery was recently down 1.7% or nearly six cents at US$3.28 a pound. In London, copper fell 1.5%, aluminium 1.1%, lead 1.9%, nickel 0.8% and zinc 1.8%. Tin was unchanged.
Losses on Asian markets continued through Europe. The Stoxx Europe 600 index fell 1% as Germany's DAX lost 0.92%, France's CAC 1.02% and Britain's FTSE 0.78%.
"This Chinese data has been a bit of a spook for risk appetite," Richard Perry, market analyst at Hantec Markets, told MarketWatch. "These markets haven't really been pushing on with any great strength recently and the Chinese data, which were below expectations, gave investors a bit of a jolt and an opportunity to take some profits and start fresh at lower levels."
Gold stocks were a standout as a weak US dollar helped steer the metal to a two-month high. The NYSE Gold Bugs index rallied 2.73% as gold for February delivery advanced $23.70 or 1.9% to settle US$1,262.30 an ounce. The metal was more recently at US$1,262.70.
Oil extended its rebound into a fourth session as the first increase in US inventories in eight weeks failed to halt the rally. West Texas Intermediate crude oil for March delivery was lately up 55 cents or 0.6% at US$97.28 after settling at US$97.49 a barrel.
A mixed batch of US economic news had little impact. First-time jobless claims rose by 1,000 to 326,000 last week, less than expected. A preliminary measure of manufacturing activity dipped this month to 53.7 from December's 11-month high of 55 due in part to cold weather. A leading economic index improved 0.1% in December, its sixth straight gain. Sales of existing homes increased 1% in December, slightly less than anticipated.
TRADING THEMES TODAY
RETRACE IN THE BALANCE: Wall Street has been dithering around the same level for more than a month, waiting for a catalyst to break one way or the other. Last night's fall was not enough to determine the issue one way or the other - a similar sell-off a week and a half ago was swiftly overcome and last night may also prove no more than a temporary wobble. The 50-day moving average is not far below and may provide support. There was also a bit of bargain hunting off the lows during the last two hours of US trade. However, none of that is likely to provide much of a cushion for our China-exposed market today with a public holiday on Monday meaning Wall Street will trade twice before the ASX re-opens. Yesterday's pattern is likely to continue, with resource stocks (aside from gold) especially vulnerable.
ECONOMIC NEWS: There is no significant economic data scheduled today anywhere that matters for Australian traders.
