A Friday fade on Wall Street has Australian shares pointing lower for the start of a new week, but strength in commodity prices should limit the falls.
The June SPI 200 futures contract, which expires on Thursday, fell 26 points or 0.5% to 4759 as caution infected US trade ahead of this week's two-day Federal Reserve policy meeting.
The S&P 500 stuttered to a loss of nine points or 0.57% on Friday for the index's third weekly deficit in four weeks. The Dow dropped 106 points or 0.7% and the Nasdaq lost 0.62%.
"We're hitting a period of higher volatility," an investment manager at Astor Asset Management in the US told Bloomberg. "Interest rates need to rise, but while you have an economic picture, where growth is around 2%, you don't have a lot margin of error to work with in terms of interest rates... The market is going to focus heavily on every word that the Fed says."
Cyclical stocks bore the brunt of the selling after the International Monetary Fund downgraded its growth outlook for the US economy and a gauge of consumer confidence in the US missed expectations. The Morgan Stanley Cyclical Index slipped 0.93%. Financials and energy stocks were the worst of the S&P 500's 10 industry groups. BHP lost 1.29% and Rio Tinto 0.67% in US trade.
The IMF cut its 2014 US growth forecast to 2.7% from 3%, left its 2013 outlook unchanged at 1.9% and urged the Fed to be wary of how it unwinds its stimulus program in case of disruptions to financial markets. The preliminary June UMich-Reuters consumer-sentiment index declined to 82.7 from a final May reading of 84.5. Economists had expected the index to improve to a new six-year high of 84.7. Other reports had industrial production unchanged last month and producer prices up 0.5%.
Commodity markets were broadly positive, supported by a modest decline in the US dollar. Rising tensions in the Middle East helped West Texas Intermediate crude for July delivery rise $1.20 or 1.2% to US$97.89 a barrel. The US announced on Thursday that it will arm opponents of the beleaguered Syrian government.
Iron ore extended a modest rally since the market re-opened following last week's three-day public holiday in China. Spot ore for import into China rose $1.60 to US$113.60 per dry metric tonne.
Precious metals took their cues from signs of inflation in US wholesale prices and a Wall Street Journal report that the Fed is in no rush to end its stimulus program. Gold futures for August delivery rallied $12.70 or 0.9% to US$1,390.50 an ounce. July silver advanced 40 cents or 1.9% to US$21.99 an ounce.
Copper inched higher but still ended in negative territory for a second week. US copper for July delivery put on 0.35% or one cent at US$3.20 a pound. In London, copper gained 0.6% and nicked bounced 1.6% off a four-year low. Zinc and lead moved higher. Tin and aluminum declined.
A choppy end to the week saw Europe's benchmark index finish lower for a fourth straight week. The Stoxx Europe 600 index added 0.21% on Friday but lost 1.5% for the week. On Friday, Germany's DAX put on 0.4%, France's CAC 0.18% and Britain's FTSE 0.05%.
TRADING THEMES THIS WEEK
VOLATILITY TO CONTINUE: The six-month armchair ride from mid-November to mid-May is a distant memory after a turbulent few weeks. Friday's 2% bounce, the largest in 18 months, was very welcome but the scale was more typical of the violent rebounds within a bear market than the measured rises of a healthy bull. Also, trading volume on Friday was the lowest of the week, which suggests the rise owed more to short-covering than genuine conviction buying. In other words, this decline likely has further to run.
FED TO SET THE TONE: This week's pivotal moment will come on Wednesday night when the US Federal Reserve ends a two-day policy meeting with a monetary policy statement and press conference. Chairman Ben Bernanke's powers of market manipulation will be tested to the limit as he attempts to reassure jittery money markets that the inevitable wind-back of Fed bond buying does not herald the end of the world. The short-term outlook for international equities, bonds, commodities and currencies depends heavily on the outcome of this meeting.
CHINESE MANUFACTURING: Thursday brings a first glimpse at June factory activity at our biggest trading partner. Investors in resources will hope for indications that last month's downturn had not accelerated this month. HSBC' final manufacturing purchasing managers' index for May was a gloomy 49.2, the first negative reading in seven months. ForexFactory say economist are looking for a modest improvement this month to 49.4, still below the 50-point level that divides contraction from expansion.
ECONOMIC NEWS: This week's domestic calendar includes: new motor vehicle sales (11.30am EST today); minutes from the last RBA meeting (tomorrow); two leading indexes (Wed); and the RBA Bulletin (Thu). Highlights of a busy week in the US include: Empire state index, home builders' index (tonight); consumer price index/core CPI, housing starts (tomorrow); Federal Reserve policy statement (Wed); weekly jobless claims, existing home sales, Philly Fed and leading indicators (Fri).
