The share market faces its toughest start in several months after company profit disappointments fuelled Wall Street's worst session since June.
The December SPI 200 futures contract closed 45 points or 1% weaker at 4522 on Saturday morning as copper suffered its biggest decline in six months and oil and most metals pulled back.
The S&P 500 gave up most of the week's gains, falling 1.67% on Friday as companies including Microsoft, McDonald's and General Electric joined the growing list of earnings misses this quarterly reporting season. The Dow sank 205 points or 1.51% as IBM and Intel fell for a third day. The Nasdaq lost 2.18% as shares in Apple plunged 3.6% ahead of its profit report this week.
"We've had some household names disappointing on revenue, earnings or guidance," a market strategist at Lazard Capital Markets in the US told MarketWatch. "Since this is the worst day we've had in months, it reminds us that we haven't had much volatility or downward pressure since the bottom in June."
A mixed third-quarter earnings season took a turn for the worse on Friday when half of the 18 S&P 500 companies that reported missed analysts' targets. Shares in GE fell 3.4%, McDonald's 4.5% and Microsoft 2.9% on the 25th anniversary of the 1987 Black Monday crash, Wall Street's worst session. Advanced Micro Devices slumped 16.8% as it became the latest victim of a grim earnings season in the tech sector.
Wall Street's anxiety index, the VIX, surged 13.5% to its highest level since early September but remains well below levels seen in June or earlier this year.
Economic news had minimal impact, but sales of existing homes declined 1.7% last month broadly in line with expectations. The longer-term trend remained positive, up 11% year on year.
European markets retreated after an EU meeting produced no action on Spain. Germany's DAX lost 0.76%, France's CAC 0.85%, Britain's FTSE 0.36%, Spain's IBEX 35 2.31% and Italy's FTSE MIB 2%.
Copper, viewed by some a bellwether for the global economy, led a retreat in commodities as investors dumped risk assets for the US dollar and government bonds. US copper for December delivery dropped 11 cents or 3% to US$3.63 a pound. In London, copper fell 2.5%, aluminium 2.2%, lead 2%, nickel 2.1%, tin 2.3% and zinc 1.9%.
"We had a big rally in base metal prices going into September on anticipation of QE3, the implementation of QE3 and also the raft of policy initiatives announced in China and measures taken by the ECB," the head of commodities research at Natixis told Reuters. "Just don't expect this surge in prices to be sustainable. It was not a real reflection of improved demand in China and it is no surprise to us that base metals prices have come off quite significantly."
Oil had been supported by the temporary closure of a pipeline between Canada and mid-west USA but turned lower as risk aversion gripped Wall Street. West Texas crude for November delivery retreated $1.96 or 2.1% to US$90.14 a barrel.
Gold was treated by the market as a risk asset rather than a haven, increasing its loss for the week to more than 2%. Gold for December delivery dropped $230.10 or 1.3% to US$1,721.60 an ounce.
TRADING THEMES THIS WEEK
US EARNINGS THE MAIN FOCUS: A light week for scheduled economic news is likely to remain subject to the ups and downs of the third-quarter earnings season in the US. Traders began the season with high hopes that companies had lowered expectations far enough to beat analysts' estimates. However, Reuters reports that just 41.4% of companies have beaten revenue targets this season, versus the long-term average of 62%. The tech sector has been the biggest disappointment, which makes Thursday's after-market report from Apple, the US's biggest company by market weight, all the more important. Other highlights this week include: Caterpillar, Yahoo, Texas Instruments (tonight); Facebook, Netflix, UPS, 3M (Tue); AT&T, Boeing (Wed); and Amazon and Procter & Gamble (Thu).
CHINESE MANUFACTURING: Wednesday brings a first look at this month's Chinese manufacturing data for October. HSBC's flash manufacturing purchasing managers' index has been contracting for 11 months and stalled at 47.8 for a second month in September. Last week's Chinese reports offered hints that the economy is stabilising and traders will watch Wednesday's report for further evidence that the year-long slowdown in Australia's largest trading partner is easing.
ECONOMIC NEWS: A light week for scheduled domestic news includes: the Conference Board's leading index (tomorrow); and the consumer price index/trimmed mean CPI (Wed). The highlights of a back-weighted week in the US include: new home sales, Reserve Bank rate announcement (Wed); weekly jobless claims, durable goods (Thu); and GDP and consumer sentiment (Fri).
