Australian stocks face a fifth day of losses after euro-zone worries and a rise in downgraded corporate outlooks dragged Wall Street lower overnight.
The September SPI 200 futures contract ended the night session 19 points or 0.5% in the red at 4046 as a firming US dollar weighed on commodity prices.
US stocks began the session brightly as European indexes celebrated yesterday's EU bailout plan for Spain with solid advances. But the mood dimmed as companies continued to cut their earnings forecasts or miss profit expectations. The S&P 500 fell 0.81% to extend its losing run to four sessions and 2.5%. The Dow dropped 83 points or 0.65% and the Nasdaq lost 1%.
US investors are nervous that the second-quarter earnings season now underway is expected to bring the first decline in profits since 2009. Those fears appeared to be confirmed overnight as engine-maker Cummins slashed its sales forecast, Advanced Micro Devices reported sliding sales and Applied Materials cut its profit and sales projections.
"The bigger concern is with the next few quarters," the chief investment strategist at the private-banking unit of KeyCorp in the US told Bloomberg. "Earnings disappointments suggest that we're going to have not only weakness this quarter, but it's likely to carry on."
Risk appetite was also undermined by an upturn in the US dollar after a German court delayed Europe's permanent bailout fund and Italy's Prime Minister said he could not rule out a bailout for Italy. The euro fell to a new two-year low. Germany's Federal Constitutional Court said it could take three months to rule on a challenge to the country's participation in the permanent fund. The fund was supposed to start on the first day of this month.
European markets took their cues from an unexpected improvement in British manufacturing output and a fall in Spain's borrowing costs after EU finance chiefs signed off on a bank bailout plan. Germany's DAX rallied 0.79%, France's CAC 0.59% and Britain's FTSE 0.65%.
Oil slumped to its lowest level in a week after Norway stopped a strike by oil workers and the US cut its demand outlook for the next two years. The Norwegian government forced off-shore oil workers into arbitration to avert a strike due to start on Monday night. West Texas crude for August delivery was recently down $1.93 or 2.2% at US$84.06 a barrel.
Industrial metals were hurt by yesterday's Chinese trade report, which showed a sharp decline in metals imports. In London, copper fell 0.9%, aluminium 0.7%, lead 0.2%, nickel 2.1% and zinc 1.3%. Tin rallied 1.5%. US copper for July delivery was recently down four cents or 1.2% at US$3.39 a pound.
Gold continued to trade with risk assets, rather than havens, falling towards the lower band of its recent trading range. Gold for August delivery was lately off $22.60 or 1.4% at US$1,566.50 an ounce.
TRADING THEMES TODAY
RETREAT CONTINUES: We're suffering death by a thousand cuts at present. The daily declines aren't brutal but they are unrelenting. Wall Street is reluctantly accepting that expectations for this earnings season may not be low enough yet. Despite that, Europe's incapacity to deal with its problems mean the US dollar just keeps rising, pressuring both commodities and equities. That's a deadly combination for a stock market as heavy in miners as ours. Canada's benchmark index fell 1.05% overnight. On the plus side, this is one of the few days this week when China has no gloomy economic news to release. The themes of the last few days will likely continue today: strength in defensive sectors, weakness in cyclicals. Airlines, utilities and insurers offered glimmers of green in the US overnight. Precious metals miners continued this week's toboggan ride - there are going to be some tempting share prices here soon.
ECONOMIC NEWS: Consumer sentiment figures are due at 10.30am EST, followed by home loans at 11.30am. The US releases trade balance data tonight, along with the minutes from the last Federal Reserve meeting, crude oil inventories and wholesale inventories.
