Stocks likely face a soft start to the week after Wall Street broke its winning run and the euro-zone announced a bail-out for Cyprus over the weekend.
The March SPI 200 futures contract eased 23 points or 0.5% to 5099 as the Dow dropped for the first time in 11 sessions following an unexpected deterioration in consumer confidence.
The Dow clawed back more than half of its initial losses by Friday's close but still finished 25 points or 0.17% in the red, curtailing its longest daily advance in 16 years. The S&P 500 retreated two points or 0.14% to 1,561, just four points off its 2007 all-time high. The Nasdaq lost 0.3%.
"The market is looking for any excuse to take a breather," a portfolio manager at BMT Asset Management in the US told MarketWatch. "We've been heading up for a time, so this is just a pause. You can't go up all the time, just like you can't go down all the time."
A fall in consumer confidence to its lowest level since December 2011 gave the market an excuse to take profits. The UMich-Thomson Reuters consumer-sentiment gauge sagged to a preliminary reading of 71.8 this month from a final reading of 77.6 in February as Americans fretted over the sequestration stand-off in Washington and elevated fuel prices.
Other economic news was brighter. Industrial production increased by 0.7% last month from a flat reading in January. A regional gauge of factory activity in the greater New York region moderated slightly but held in positive territory for a second month. More troubling for the Federal Reserve's stimulus program was a 0.7% surge in consumer prices last month, the biggest increase in nearly three years.
Friday's "quadruple witching" session saw the biggest volume of the year as various options and futures contracts expired. Financials were the pick of the sectors despite a 1.92% drop in JPMorgan after a Senate probe concluded that CEO Jamie Dimon misled investors over last year's multi-billion dollar trading fiasco.
European markets retreated ahead of a European Union announcement that Cyprus will join a growing list of euro-zone nations to receive a bailout. The euro-zone and International Monetary Fund agreed to give Cyprus $13 billion on condition it impose a levy on savings held in Cypriot banks. The Cypriot government was this morning struggling to get the votes to pass the unpopular savings tax. Read more here. On Friday, Germany's DAX lost 0.19%, France's CAC 0.71% and Britain's FTSE 0.6%.
A falling US dollar helped oil ignore mixed economic data and sliding equities. West Texas Intermediate crude for April delivery advanced 42 cents or 0.45% to US$93.45 a barrel and a 1.6% gain for the week.
Base metals fell in London as rising stockpiles continued to weigh on buyer sentiment. Copper lost 0.6%, aluminium 0.7%, lead 1.2%, nickel 1.9%, tin 0.3% and zinc 1.1%. US copper for May delivery fell two cents or 0.6% to US$3.52 a pound.
Gold remained locked in a tight trading range but secured a weekly gain of roughly 1% with a gain of 60 cents or less than 0.1% on Friday at US$1,591.30 an ounce.
TRADING THEMES THIS WEEK
RETURN OF VOLATILITY: The VIX may be near six-year lows in the US, but the ASX has been a more temperamental beast lately. After rising in a straight line, more or less, for three months, the XJO hasn't put together three straight daily rises since February 20. The intraday moves also appear to be increasing. Friday's 1.8% rally was the largest in eight months. The trend remains positive but there are implications here for different trading approaches, with overnight holds looking like less of a sure thing.
IRON ORE FREEFALL: One of the reasons for the rise in volatility on the ASX is a sharp deterioration in the price of iron ore. Prices have come off more than 13% in the last month as the Chinese government tries once again to rein in its property market. Read more here. The decline has fuelled significant pullbacks in BHP and Rio Tinto, two of the mainstays of the ASX, plus players such as FMG, AGO and MGX. Share prices in some cases are coming off faster than iron ore, creating potential opportunities for value investors in the weeks ahead.
CYPRUS BAILOUT: The rescue package for Cyprus announced on Saturday was hardly a surprise, but it is an unwelcome reminder that the euro-zone debt crisis continues to simmer in the background. Financial markets may even see a positive in the terms of a deal that hits private depositors in the hip pocket for the first time. That is assuming the Cypriot government is able to pass a wildly unpopular measure.
FED WATCHING: The suggestion this time last month that the US Federal Reserve was re-evaluating its bond-buying program caused conniptions on Wall Street. Market nerves were quickly soothed by dovish statements from Chairman Bernanke, but the minutes of the last meeting showed there are elements within the Fed pushing for revisions tot he stimulus program. The Fed assembles tomorrow for a two-day meeting, with traders hanging on the outcome on Wednesday night. Read more here.
CHINESE MANUFACTURING: Thursday brings a first taste of March manufacturing activity in the biggest consumer of Australian raw materials. Economists are predicting a rebound in activity, following last month's unexpected deterioration in the pace of growth.
ECONOMIC NEWS: This week's domestic calendar includes: vehicle sales (11.30am EST today); minutes from the last Reserve Bank meeting (tomorrow); leading index (Wed); RBA Bulletin (Thu); and another leading index (Fri). Highlights in the US include: home builder's index (tonight); housing starts (tomorrow); Federal Reserve funds rate and statement (Wed); weekly jobless claims, existing home sales, leading indicators and Philly Fed (Thu).
