Fresh stimulus measures from China may give Australian stocks a positive platform this morning despite modest falls on Wall Street on Friday in the aftermath of JPMorgan's $2 billion trading debacle.
The June SPI 200 futures contract closed two points or less than 0.1% ahead at 4287 on Saturday morning as most European markets closed stronger and US indexes finished mixed. But a weekend move by China's central bank to pump more money into the economy should help offset further declines in oil, copper and gold.
US stocks shook off sharp early losses as an improved consumer confidence reading took some of the sting out of a slump in financial shares after JPMorgan revealed substantial proprietary trading losses. The Dow rallied nearly 140 points from its low but faded in afternoon trade to a loss of 34 points or 0.27%. The S&P 500 dropped 0.34% and the Nasdaq, largely unaffected by falls among financials, added 0.01%.
"Today there is a flight to safety," a market strategist with DRW Trading Group in the US told Reuters. "Greece is not resolved, Spain is not resolved. And JPMorgan adds a bit of concern simply because they were assumed to be the well-run bank, and if this sort of thing could happen there, where else could it happen?"
Shares in JPMorgan sagged 9.3%, dragging other big investment banks with it. Citigroup, Bank of America, Morgan Stanley, and Goldman Sachs all fell at least 2% as commentators warned that JPMorgan's losses strengthened the case for those calling for tighter regulation of proprietary trading.
Consumer sentiment in the US last month reached its highest level since January 2008. The Thomson Reuters/University of Michigan preliminary index edged up to advanced to 77.8 from 76.4, bucking the recent downturn in US economic data. A separate report showed a 0.2% fall in producer prices, mainly due to falling energy prices.
Commodity prices were hurt by further signs of a slowdown in China. Friday's monthly economic update, released late afternoon Australian EST, showed industrial output, retail sales, fixed asset investment and copper production all missed targets. The report prompted the People's Bank of China to announce yesterday a 50 basis points cut in the amount of money that banks must keep as reserves. Read more here.
Oil settled at its lowest price of the year. West Texas crude for June delivery ended trade $1.51 or 1.6% weaker at US$95.57 a barrel after earlier settling at $96.13.
"There continues to be a lot of bearish factors hitting oil: high US inventories, slowing European growth (and getting slower), a reduction of the risk premium as things improve with Iran, and consistent increase of supplies," the editor of the 7:00's Report told MarketWatch.
Copper led a retreat in most base metals as China's economic data confirmed fears that growth in the world's biggest consumer of raw materials is slowing. In London, copper fell 1.3%, lead 1.5%, nickel 0.3%, tin 0.2% and zinc 1.4%. Aluminium rallied 0.1%. US copper for July delivery fell six cents or 1.7% to $3.63 a pound.
Gold ended the week 3.7% lower amid continuing strength in the US dollar. Gold for June delivery lost $15.70 or 1% on Friday at US$1,5879.90 an ounce.
The major European markets were boosted by the positive US consumer sentiment report. Germany's DAX added 0.95%, France's CAC was little changed at -0.01% and Britain's FTSE rallied 0.57%.
TRADING THEMES THIS WEEK
CHINA PRIMES THE PUMPS: Last week's Chinese economic news made fairly unhappy reading, so it's a relief for Australia's resource sector to see China's central bank cut bank lending requirements for the third time in six months. That should offer our market some support this morning, but we may have to wait to see if the Shanghai Composite approves first.
JPMORGAN FALLOUT: The punishment meted out to JPMorgan on Friday was swift and brutal following its confession of a $2 billion loss in its proprietary trading of credit derivatives. The question is how much of an enduring impact will the news have on Wall Street? Investors may forgive it as an isolated instance or they may ask what is going on elsewhere if one of the best-run banks can make that calamitous an error.
US ECONOMIC DATA REPLACES EARNINGS RESULTS: With the quarterly earnings season winding down, investor attention in the US will return to macro-economic data - which may or may not be a good thing. Negative surprises have been on the rise lately, suggesting this desperately slow economic recovery continues to stutter. At the very least, it's a distraction from Europe's woes. Key reports this week include retail sales tomorrow night, industrial production on Wednesday and jobless claims on Thursday. See below for more.
ECONOMIC NEWS: This week's domestic schedule includes: monthly home loans (today 11.30am EST); the minutes from the last Reserve Bank meeting, new car sales (tomorrow); consumer sentiment, wage price index (Wed); and inflation expectations (Thu). This week's US highlights include: retail sales, consumer price index and core CPI, Empire state index, inventories, home builders' index (tomorrow); housing starts, industrial production, capacity utilisation (Wed); weekly jobless claims, leading indicators and Philly Fed (Thu).
