Shares are likely to open near a seven-month low after a sharp sell-off in Europe and the US ahead of Thursday's European Union summit.
The September SPI 200 futures contract ended the night session 34 points or 0.8% weaker at 3963 as Cyprus became the latest euro-zone nation to ask for a bailout and Greece's latest finance minister quit after just four days.
US stocks plunged at the opening bell and recouped little of their initial losses. The S&P 500 fell 1.6% as a survey showed US earnings projections at their most pessimistic since the GFC. The Dow dropped 138 points or 1.09% and the Nasdaq tanked 1.95%.
"There are reasons for investors to be concerned," the chief market strategist for Russell Investments in the US told Bloomberg. "In addition to the ongoing wounds of Europe, we'll begin to see softness in corporate earnings."
US corporations have turned bearish this month, leading analysts to predict the first downturn in quarterly earnings since 2009, according to Bloomberg. Company profit outlooks released this month have been missing analyst estimates by a ratio of more than three to one.
European markets sank ahead of a two-day meeting of European Union leaders starting on Thursday after German Chancellor Angela Merkel reiterated her resistance to the joint euro-bonds that many see as the key to defusing Europe's debt crisis. Merkel told a conference she expected the summit "discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures".
Peripheral markets bore the brunt of the selling as Spanish and Italian bond yields turned higher. Italy's FTSE MIB lost 4.02% and Spain's IBEX 35 3.67% after Spain formally requested aid from the EU. The Athens General Index plunged 6.84% after finance minister, Vassilios Rapanos, resigned four days into the job. Germany's DAX dropped 2.09%, France's CAC 2.24% and Britain's FTSE 1.14%.
Commodities avoided the scale of selling seen in equities, with gold, silver and copper advancing. Precious metals benefitted from haven buying and bargain hunting after last week's steep declines. Gold for August delivery was recently up $18.40 or 1.2% at US$1,585.20 an ounce. July silver put on 80 cents or 3% at US$27.46 an ounce.
"The further deterioration of the economic recovery, enhanced potential for quantitative easing and continued structural problems in the euro-zone lead us to believe that gold prices will stay stronger into 2014 and 2015," Nomura analysts said in a research brief quoted on MarketWatch.
Copper rallied for the first session in four as industrial metals finished mixed in London. Copper added 0.3%, aluminium 0.2% and zinc 0.2%. Lead fell 1.6%, nickel 0.9% and tin 0.8%. US copper for July delivery was recently up three cents or 0.7% at US$3.33 a pound.
Oil traded as low as US$78.03 a barrel in the US before staging a partial recovery. West Texas crude for August delivery was recently off 59 cents or 0.7% at US$79.17 a barrel.
TRADING THEMES TODAY
NEARING A TURN? The ASX showed yesterday that there was buying interest around the level where the benchmark index is likely to open today. That doesn't guarantee a bounce, but it does suggest that some traders are starting to dip their toes after a three-day decline that at yesterday's low had stripped nearly 140 points off the index. However, the grim news out of Europe continued to pile up overnight and it would be brave to expect anything substantial to emerge from this week's EU meeting. Precious metals miners provided a rare glimmer of green in US trade and may offer a haven here. Banks and tech stocks were notably weak.
ECONOMIC NEWS: China releases a leading index of economic indicators at noon EST, which previously has had little impact on trade. Consumer confidence provides the main interest tonight in the US. Also due: the Richmond Manufacturing Index and house price index.
