Shares are pointing lower after taper fears and a surprise European rate cut fuelled falls in commodities and Wall Street's worst session in a month.
The December SPI 200 futures contract slipped 30 points or 0.6% to 5399, at the lower end of the share market's recent trading range.
The S&P 500 fell 23 points or 1.33% as upbeat economic data increased the likelihood that the Federal Reserve will reduced its stimulus spending and Europe's rate move stoked a rally in the US dollar that undercut oil and metals. The Dow dropped 153 points or 0.97% and the Nasdaq lost 1.91%.
"You had some good economic news today and we'll see what the payrolls numbers are [tonight]," Ernie Cecilia, chief investment officer at Bryn Mawr Trust in the US, told Bloomberg. "The fear is that with better-than-expected economic numbers, tapering will commence sooner rather than later."
The session began brightly after the European Central Bank halved its benchmark interest rate to a record low of 0.25% and data showed the US economy accelerated faster than expected last quarter. Profit taking set in quickly as the double whammy drove the US dollar sharply higher, sapping demand for risk assets.
Gross domestic product increased at an annualised rate of 2.8% over the third quarter, versus a growth rate of 2% anticipated by economists polled by Bloomberg. Jobless claims declined by 9,000 to 336,000 last week, in line with expectations. Consumer spending increased by 1.5%.
Cyclical stocks bore the brunt of the selling. The Morgan Stanley Cyclical Index tumbled 1.47%, the Dow Jones Transportation Average 1.42% and the Russell 2000 index of small caps 1.78%. Twitter was a notable exception, surging 73% on debut amid speculation that the share offering was under-priced following the Facebook debacle.
A modest reversal in iron ore following a five-day rally added to pressure on BHP and Rio Tinto in US trade. BHP fell 1.92%, Rio 1.76%. Spot iron ore for import to China yesterday eased 20 cents to US$136.90 a dry tonne.
European stocks initially rose on the ECB decision, then followed selling on Wall Street to a flat finish. The central bank reduced its benchmark rate after inflation hit its weakest level in four years and unemployment remained at record levels. The Stoxx Europe 600 closed 0.01% in the red as Germany's DAX held on to a gain of 0.44%, France's CAC lost 0.14% and Britain's FTSE retreated 0.66%.
Gold, the most currency-sensitive of metals, dived below US$1,300 an ounce before staging a partial recovery. Gold for December delivery was lately down $12 or 0.9% at US$1,305.90 an ounce after earlier settling at US$1,308.50.
"Precious metals, like all the other markets, came to life when the ECB surprised everyone with a 25 basis-point interest-rate cut," Fawad Razaqzada, technical analyst at GFT Markets, told MarketWatch. "News of a surprisingly good US third-quarter GDP weighed further on the metals as that gave investors even more reason to pile into the US dollar and out of safe-haven metals."
Oil came under additional pressure from an easing of Middle Eastern tensions as talks over Iran's nuclear program continued in Geneva. West Texas Intermediate crude for December delivery was recently down 52 cents or 0.55% at US$94.28 a barrel.
Lead, zinc and nickel fell to three-week lows and tin a two-month low, but copper remained resilient to the greenback rally. In London, lead lost 0.7%, nickel 0.8%, tin 0.6%, zinc 0.5% and aluminium less than 0.1%. Copper bounced 0.4% in London and was lately up 0.1% or less than a cent at US$3.26 a pound in US trade.
TRADING THEMES TODAY
POSSIBLE BREAKDOWN: Rate cut in Europe: boo! Accelerating US economic growth: boo! Boy, does this market not like "good" news. The result of all that joy overnight was a major tank on Wall Street. That sets up our market for a potential break below its recent trading range. A lower high appears to be in place and today may bring the lower low. Resource stocks are likely to wear the worst of the selling - BHP and Rio copped some heavy handling and the gold bugs index (HUI) slumped 2.42% in the US. There were no obvious hiding places in the US - industrials dived 2.35%, banks 1.12% and oil services companies 1.52%. The best chance of a reversal today seems to lie with a Reserve Bank quarterly monetary policy statement and a Chinese trade report (see below for more detail).
ECONOMIC NEWS: The RBA releases its quarterly policy outlook at 11.30am EST. The monthly Chinese trade balance update is due this morning, exact time uncertain but likely around lunchtime AEST. A huge night ahead in the US includes the monthly non-farm employment report, unemployment rate, personal spending and income, average hourly earnings, preliminary consumer sentiment and inflation expectations, plus speeches from President Obama and Fed Chairman Bernanke.
