A fourth night of falls on Wall Street following weak corporate outlooks from bellwether stocks has Australian shares aiming lower this morning.
The December SPI 200 futures contract ended the night session 25 points or 0.6% lower at 4459 as Alcoa and Chevron clouded the start of the third-quarter earnings season in the US.
The S&P 500 lost 0.59% as a brief bounce fuelled by a more upbeat outlook from the Federal Reserve faded. The Dow, which counts Alcoa and Chevron as two of its 30 components, slumped 129 points or 0.95%. The Nasdaq fell 0.42%.
Shares in aluminium giant Alcoa sagged 4.7% after a downgrade to its demand expectations overshadowed a better profit than analysts expected. Oil major Chevron shed 4.2% after warning its Q3 earnings were "substantially" weaker than the previous quarter. In contrast, Yum Brands, owner of the KFC and Taco Bell chains, surged 8% and Wal-Mart hit a record high.
"I think the poor earnings for the third quarter are baked into the market. If that were the only issue I think there would be limited downside," an investment strategist at Robert W Baird in the US told Reuters. "But what matters now is the outlook for the fourth quarter and 2013. So far it seems to be one of more caution, and if that trend continues that could be a headwind for stocks."
The S&P 500 found support near its 50-day moving average and last retrace level but the recent uptrend is under pressure after it failed to set a new higher high on its last rally. The Dow, which managed a higher high last week, plunged to its weakest level in nearly four weeks before also finding support near its 50-day MA.
Stocks caught a brief bounce from the release of the Federal Reserve's "Beige Book", which adopted a slightly more optimistic tone towards the economy. "Reports from the twelve Fed districts indicated that economic activity generally expanded modestly since the last report," the report said. Read more here.
Oil gave back around a third of yesterday's gains as traders looked ahead to weekly US inventory reports that are expected to underline soft demand. West Texas crude for November delivery was lately down 99 cents or 1.1% at US$91.39 a barrel.
Aluminium was shaken by a reduced demand outlook from Alcoa, falling to its lowest level in a month during a generally soft session for industrial metals. In London, aluminium lost 2.3%, lead 2.3%, nickel 1.3%, tin 0.3% and zinc 1.7%. Copper edged up 0.2%. US copper for December delivery was recently unchanged at US$3.72 a pound.
"Alcoa seems to blame weak Chinese demand for the current development but I see it differently. I think it's not the demand in China which is depressing prices but the developments on the production side," a commodity analyst at Commerzbank in Germany told Reuters. "Chinese aluminium production increased by about 10% in the first eight months of the year and elsewhere demand only fell by about 2%. This is not enough, there is a huge oversupply at the moment."
Gold held its ground following a three-day retrace. Gold for December delivery was lately down 41 cents or less than 0.1% at US$1,764.60 an ounce.
European markets edged lower after calls for a general strike in Greece helped push the Athens General Index down 3.64% and meetings involving European leaders and ministers did little to boost sentiment. Germany's DAX gave up 0.41%, France's CAC 0.5% and Britain's FTSE 0.57%.
TRADING THEMES TODAY
RETRACE CONTINUES: The XJO has stubbornly clung near its 14-month high this week but one wonders how long that can last if the S&P 500 doesn't hold this level. The next few sessions could be decisive for the short-term direction on world markets. The initially bullish reaction to Alcoa's better-than-expected profit result yesterday morning soon turned to disappointment over its outlook. Other results were better but it's not a dream start to the Q3 earnings season. Banks were solid in the US overnight and precious metals miners resisted the downturn. Defensives appeared to fare little better than cyclicals, suggesting the sell-off was broad and unselective. The release of domestic monthly employment figures at 11.30am EST may have some impact today. The unemployment rate is tipped to increase from 5.1% in August to 5.3% last month.
ECONOMIC NEWS: Inflation expectations are due at 11am EST, followed by the more important monthly employment change and unemployment rate at 11.30am. The G7 meets tonight. A slow week for US data picks up tonight with the release of the trade balance, weekly jobless claims, import prices, crude oil inventories and natural gas storage.
