Sharp retreats on commodity markets and Wall Street have Australian shares pointing lower after further signs of economic slowdown in the US overshadowed the continuation of the Federal Reserve's bond-buying program.
The June SPI 200 futures contract dropped 24 points or 0.5% to 5137 as BHP and Rio Tinto fell more than 2% in US trade, gold hit a one-week low and industrial metals were crunched by yesterday's soft Chinese and Australian manufacturing reports.
Afternoon news that the Fed will maintain its stimulus program did little to arrest a slide on equity markets following weak payrolls and manufacturing figures. The S&P 500 sagged 15 points or 0.91% from Tuesday's record high to 1,583. The Dow slipped 139 points or 0.94% and the Nasdaq lost 0.89%.
There were no surprises at the end of this month's Federal Reserve policy meeting, with the central bank repeating its commitment to buy US$85 billion worth of bonds per month and leave its benchmark overnight rate unchanged while unemployment remains above 6.5%.
"That the Fed won't end QE [quantitative easing] any time soon is positive for stocks in the near term, but the data we've seen is creating a lot of angst for investors," the co-head of the equity advisory group at Raymond James in the US told Reuters.
Concerns over yesterday's Chinese manufacturing report were exacerbated by a slowdown in US manufacturing and payrolls growth. The Institute for Supply Management's US manufacturing index fell to 50.7 last month from 51.3 in March, the weakest reading since late 2012. Private payrolls operator ADP said the private sector added 119,000 jobs in April following a 131,000 gain in March, the smallest number since September. Construction spending slumped 1.75 in March despite the recent revival in the US housing market. Read more here.
Cyclical stocks were hit hardest by the declines, with commodity stocks the worst of the S&P industry groups and the defensive consumer staples and telecoms doing best. The Dow Jones Transportation Average sank 2.32%, the Russell 2000 index of small caps 2.45% and the Morgan Stanley Cyclical Index 1.44%. BHP lost 2.04% and Rio 2.69%.
Copper tumbled back towards last week's 18-month low and nickel hit its weakest level in nearly four years as traders factored in the latest manufacturing disappointments to the demand outlook. US copper for May delivery was recently down 12 cents or 3.8% at US$3.07 a pound. In London, copper fell 3.7%, aluminium 2.4%, lead 2.4%, nickel 3.7%, tin 2.1% and zinc 1.5%.
Oil came under additional pressure from an unexpectedly large increase in US inventories. Crude stores increased by 6.7 million barrels last week, more than four times the figure analysts expected. West Texas Intermediate crude oil for June delivery was lately down $2.44 or 2.6% at US$91 a barrel after falling as low as US$90.11.
Gold settled at a one-week low before paring losses as the Fed kept its easing program in place. Gold for June delivery was recently off $15.10 or 1% at US$1,457.10 an ounce after settling at US$1,446.20. Silver, platinum and palladium also skidded lower.
The major European markets were closed for May Day public holidays.
TRADING THEMES TODAY
PULLBACK: Last night appeared to be an old-fashioned "sell the news" session and an overdue pullback after a strong run on world markets. Global equities had rallied into the central bank meetings but the Fed was always likely to leave things on hold in the light of recent data, which has deteriorated but not by enough to force new measures. The ASX pre-empted some of the retreat yesterday and therefore does not have as much to give back today. The biggest concern is the sharp reversal in industrial metals at the LME. Dr copper had a shocker - no sign yet that the current downtrend has found a bottom. All eyes will be on Shanghai as equity trading resumes today following a three-day holiday. How will the Chinese react to yesterday's manufacturing PMI? HSBC releases the final version of its PMI at 11.45am EST, with little change expected from the preliminary reading of 50.5.
ECONOMIC NEWS: A busy day ahead includes: monthly building approvals and quarterly import prices at 11.30am EST; HSBC's final Chinese manufacturing PMI at 11.45am; European manufacturing data and a European Central Bank interest rate decision and policy statement tonight; and in the US, the trade balance, weekly jobless claims, preliminary non-farm productivity and unit labour costs and natural gas storage.
