Australian stocks face strong headwinds after a fresh round of earnings misses pushed US stocks below critical support levels and oil and metals to multi-month lows.
The December SPI 200 futures contract ended the night session 40 points or 0.9% lower at 4492 as the Dow recorded its second 200-point decline in three sessions.
The S&P 500 dived below its 50-day moving average, but unlike yesterday there was no recovery, with the benchmark index sliding 1.45% to its lowest level since early September. The Dow lost 243 points or 1.82% as components including 3M, DuPont and UTS were punished for missing analysts' targets. The Nasdaq dropped 0.89% to its lowest point since early August.
All 10 industry groups in the S&P 500 went backwards, led by resource stocks, financials and other companies tied to the economic cycle. The declines came as well-received profits reports from Yahoo, UPS, Whirlpool and handbag maker Coach were lost among disappointments from chemical maker DuPont, 3M, Xerox and United Technologies.
"You can rally on rhetoric, you can rally on monetary policy, but at some point investors need to sink their teeth into something, and this quarter's earnings don't seem to be solid enough," the chief investment officer at BMO Private Bank in the US told MarketWatch. "There are enough tentacles out there to infer that things are weakening and the outlooks are dimming."
The debut of the long-awaited iPad mini failed to curtail a month-long sell-off in Apple shares ahead of tomorrow's profit report. Shares in the US's largest company fell another 3.26% after it unveiled the smaller, cheaper tablet that will launch with a US retail price of $329.
European debt issues re-emerged as Moody's downgraded five Spanish regions and the Bank of Spain said the national economy contracted last quarter. Coupled with weak profits reports on both sides of the Atlantic, the news helped push Germany's DAX down 2.1%, France's CAC 2.19%, Britain's FTSE 1.44%, Spain's IBEX 35 1.64% and Italy's FTSE MIB 1.81%.
Wall Street's "anxiety index", the VIX, rallied 12% to its highest level since the start of August as investors rotated from risk assets, including commodities and equities, into the US dollar and government bonds.
Oil settled at its weakest level since mid-July as a pipeline between Canada and the US re-opened following a temporary closure. West Texas crude for December delivery was recently down $2.02 or 2.2% at US$86.63 a barrel after trading as low as US$85.69.
"Now that the risk-on trade has... flipped to risk-off, crude is getting walloped back to the lows of the [northern] summer," a commodity analyst with Schneider Electric in the US wrote in a report quoted on MarketWatch.
Industrial metals slid towards late-August/early-September lows amid continued weak demand from Chinese buyers. US copper for December delivery was recently off five cents or 1.35% at US$3.57 a pound. In London, copper lost 1.5%, aluminium 0.7%, lead 2.3%, nickel 1.4%, tin 1% and zinc 0.5%.
Precious metals saw little haven-buying, with gold retracing to early-September levels and palladium falling 4.5%. Gold for December delivery was lately down $18.50 or 1.1% at US$1,707.80 an ounce. December silver futures dropped 58 cents or 1.8% to US$31.68 an ounce.
TRADING THEMES TODAY
CORRECTION COMMENCING?: The levee appeared to break in the US overnight and it looks like we may have a genuine correction on our hands. Unfortunately, it looks like US investors have seen enough earnings to conclude that weak corporate outlooks don't justify the current level of share indexes. The Australian market has been remarkably resilient over the last four months and it will be interesting to see if it takes this latest downturn any more seriously. Today will be a real test of investors' willingness to buy the dips. There shouldn't be too many worries at the spec end just yet - it's always last to join the party and last to realise that it's over. There were few havens in US trade, but transport stocks benefitted from the prospect of cheaper fuel costs. Generally speaking, defensives sank less than cyclicals - but they still sank. Our market may catch a mid-session lift (or downdraught) from China's manufacturing report at 12.45pm EST (see below)
CHINESE MANUFACTURING: China-watchers (and aren't we all?) will check out today's preliminary HSBC purchasing managers' report for signs of improvement in China's manufacturing sector. The index has been contracting for 11 months and has been stalled at 47.9 for the last two months. The report will be released at 12.45pm EST.
ECONOMIC NEWS: Quarterly consumer price figures are due at 11.30am EST. HSBC's Flash Manufacturing PMI for China is released at 12.45pm (see above). Europe has a raft of manufacturing, services and business climate figures out tonight. European Central Bank President Mario Draghi is due to address the Deutsche Bundestag in Berlin. The highlights in the US are the flash manufacturing PMI, new home sales and the house price index.
