Weak global economic signals have Australian shares pointing lower this morning following declines in US and European stocks and key commodities.
The June SPI 200 futures contract dropped 22 points or 0.4% to 4959 as Wall Street gave back Tuesday's gains, iron ore hit a seven-month low and copper and oil lost ground.
The S&P 500 reversed 12 points or 0.73% after downbeat economic outlooks from the International Monetary Fund and Organisation for Economic Cooperation and Development and disappointing German employment data. The Dow closed 106 points or 0.69% weaker after earlier falling as much as 179 points. The Nasdaq lost 0.6%.
"Today is a reversal of yesterday, which is not particularly meaningful in and of itself, other than a warning that Europe can cause volatility, which we haven't seen happen in a while, and that the rest of the world is not in quite as good shape as the US is," an investment strategist at Edward Jones in the US told MarketWatch.
European markets suffered significant falls after German unemployment increased more than four times as much as economists predicted and the OECD downgraded its growth expectation for the euro-zone economy to a contraction of 0.6% from an earlier estimate of 0.1%. Germany's DAX slumped 1.7%, France's CAC 1.89% and Britain's FTSE 2%.
The OECD also trimmed its 2013 growth outlook for the US to 1.9% from 2% and warned that the winding down of central bank stimulus efforts around the planet threatened to disrupt the global economy. Read more here. Separately, the IMF cut its growth forecast for China this year and next to 7.75% from 8% in 2013 and 8.2% in 2014.
Defensive stocks took the biggest hit in the US as traders bet that "tapering" of the Federal Reserve's bond buying program will lift government bond yields, drawing money out of high-yielding stocks. Utilities, consumer staples and health care were the worst of the S&P 500's 10 industry groups overnight. The Morgan Stanley Cyclical Index dipped just 0.15%.
BHP and Rio Tinto enjoyed gains in US trade despite an accelerating sell-off that has seen iron ore fall 8% this week and 20% in a month. BHP advanced 0.24% and Rio put on 0.7%. Spot iron ore yesterday fell $4.90 or 4.2% to US$112.90 a tonne, the lowest level since October.
"Panic is building on panic," a bulk commodity strategist at Standard Bank in London told the Financial Times. [Subscription only, worth signing up for limited free access.] "Unfortunately, steel inventories have been too high, relative to underlying demand growth. This has caused the dramatic fallout in steel prices over the past few weeks. Iron ore prices have fallen in tandem as mills scramble to maintain their limited profit margins."
Copper was beaten down by the night's gloomy economic signals, but other base metals fared better. US copper for July delivery was recently off 0.5% or about two cents at US$3.30 a pound. In London, copper fell 0.8%. Aluminum, lead and zinc advanced but tin and nickel retreated.
Oil dropped to a four-week low as the OECD and IMF dulled the global economic outlook. West Texas Intermediate crude for July delivery was lately down $2.13 or 2.2% at US$92.88 a barrel.
Gold recouped two days of losses as the US dollar was pushed lower by comments from a Federal Reserve official that "significant accommodation [QE] remains appropriate at this time". Gold for August delivery was recently ahead $13.10 or 1% at US$1,392.80 an ounce.
TRADING THEMES TODAY
MUDDY TRACK: A downbeat open is likely after various oracles confessed to having been over-optimistic about the state of the world's leading economies. Wall Street ended the night pretty much where it started the week and is at one of those critical junctures where its next move will have a big say in whether this year's bull run continues. Our big two miners have been remarkably resilient this week considering the trajectory of the iron ore price - that's either a bullish signal or a failure of the market to absorb new information. Gold is once again within striking distance of the elusive US$1,400 an ounce level, which helped an index of US miners jump nearly 4% overnight. There is potential market-moving news due at 11.30am EST in the form of monthly building approvals and quarterly private capital expenditure data.
ECONOMIC NEWS: Monthly building approvals and quarterly private capital expenditure figures are due at 11.30am EST. Europe releases retail data tonight. Highlights in the US include preliminary GDP and GDP price index, weekly jobless claims, pending home sales, crude oil inventories and natural gas storage.
