Morning traders. Tin hats on - Bernanke is coming for the punch bowl!
Market wrap:
The share market will open sharply lower after US stocks and commodities reacted negatively to confirmation overnight that the US Federal Reserve is likely to reduce its bond buying this year.
The June SPI 200 futures contract, which expires today, cratered 55 points or 1.3% to 4820 as the Dow tumbled more than 200 points, the Australian dollar plunged two cents, gold fell briefly below US$1,450 an ounce and copper plumbed a six-week low.
The S&P 500 closed 23 points or 1.38% lower after Fed Chairman Ben Bernanke said the risks to the US economy have declined and the central bank may moderate its stimulus program by the end of the year and end it by the middle of 2014. The Dow recorded its seventh straight triple-digit move, sliding 206 points or 1.35%. The Nasdaq lost 1.13% as all three major share indexes closed at their session lows.
The policy statement issued at the end of the Fed's two-day meeting contained no real surprises, but failed to provide the certainty that markets have been seeking. Equity losses accelerated during a press conference as Bernanke said the current positive trend in economic data had the Fed on track to "taper" its US$85-billion-a-month bond buying sooner than many expected.
"If the incoming data are broadly consistent with [our] forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year," Bernanke was quoted as saying on MarketWatch. "And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year."
Dividend stocks bore the worst of the sell-off as traders rotated funds into government bonds as yields rose to their highest level in more than a year in response to the prospect of an end to government buying. The Dow's biggest losers were telecom stocks.
The Australian dollar dived more than two cents to a two-and-a-half-year low as the US dollar surge. The Aussie, which was hovering around 95.5 US cents before the Bernanke press conference, was lately buying 92.8 US cents. The currency has fallen roughly 10 cents since early May.
Gold was another victim of the violent gyrations, falling to its lowest level since mid-April. Gold for August delivery was lately down $16.40 an ounce or 1.2% at US$1,350.50. July silver dropped 39 cents or 1.8% to US$21.29 an ounce.
Australia's big two miners could not avoid the carnage but were partly cushioned by a fifth day of gains in the price of iron ore yesterday. BHP fell 2.78% in US trade, Rio Tinto 1.59%. Spot iron ore for import to China yesterday rose $2.30 to US$120 per dry metric tonne.
Copper fell for a third day ahead of the Federal Reserve announcements as the gloomy tone in industrial metals markets continued. In London, copper lost 1.1%, aluminium 0.6%, lead 1.1%, nickel 0.35%, tin 0.2% and zinc 0.1%. US copper for July delivery was recently off 0.7% or about two cents at US$3.13 a pound.
Oil was one of the more resilient markets, surrendering only a little of its recent gains. West Texas Intermediate crude for July delivery was lately down 51 cents or 0.5% at US$97.94 a barrel.
The major European markets closed lower in cautious trade ahead of the Federal Reserve statement and press conference. Germany's DAX dropped 0.4%, France's CAC 0.56% and Britain's FTSE 0.4%.
TRADING THEMES TODAY
BERNANKE 'PUT' NEARS ITS END: The Fed Chairman outlined the likely timetable for unwinding the Fed's stimulus program overnight and markets recoiled in horror. No more cheap cash? Heaven forbid! To be fair, Bernanke made it clear that the timing of the great unwind will be heavily dependent on the tone of economic data, which has been uneven at best. In other words, there is still a great deal of uncertainty over the exact timing of the "taper". Markets hate uncertainty. Our market is likely to cop it both ways this morning - miners will suffer from overnight moves in commodity prices, while dividend stocks will catch it from the slump in the dollar, which exacerbates losses to foreign investors. And as if there wasn't enough happening, China releases this month's preliminary manufacturing report around lunchtime (see below for details).
ECONOMIC NEWS: The Reserve Bank releases its quarterly bulletin at 11.30am EST, but today's big event during trading hours is the 11.45am HSBC flash manufacturing purchasing managers' index for China. Economists expect the pace of contraction to have slowed this month to 49.4 from 49.2 last month. Europe releases manufacturing and services data tonight, plus consumer confidence. The Eurogroup meets in Brussels. Highlights tonight in the US include flash manufacturing, existing home sales, Philly Fed Manufacturing Index, a leading index and natural gas storage.
