Market wrap: Australian stocks are likely to open sharply lower this morning following Wall Street's worst session in three weeks.
The September SPI futures contract closed 70 points or 1.7% weaker at 4106 on Saturday morning as signs of strain in Europe sparked a renewed flight to safety. Oil and base metals tumbled as the US dollar and gold rallied.
The S&P 500 closed lower for the sixth week in the last seven as a key European Central Bank executive resigned and news leaked of secret German plans for a Greek sovereign default. The benchmark index fell 2.67% on Friday, down 1.7% for the week. The Dow lost 304 points or 2.69% to close back under 11,000 at 10,992, while the Nasdaq eased 2.42%.
European markets fared worse as the resignation of Juergen Stark, the European Central Bank's top economist, highlighted divisions within policy-makers over how to deal with the euro-zone's crippling debt problems. Losses accelerated after a report that German officials were working on a plan to prop up the nation's banks if Greece defaults. Heavy selling in the financial sector sent Germany's DAX down 4.04%, France's CAC 3.6% and Britain's FTSE 2.35%.
"The market is very jittery," the chief investment officer at Research Affiliates in the US told Bloomberg. "It's hoping for good news, but it's responding very quickly to anything that doesn't indicate a path to recovery."
Adding to downward pressure in the US were a disappointing August sales report from McDonald's, which closed more than 4% lower, and reports that Bank of America is planning to slash 40,000 jobs. Investors were also sceptical that President Obama's American Jobs Act will find enough support in Congress to pass into law.
Commodities were pressured by a resurgent US dollar, which reached its highest level against the euro since February. Copper dropped more than 3% at the end of its worst week in a month. In London, copper lost 3.1%, aluminium 2.2%, lead 2.05%, nickel 3.7%, tin 3% and zinc 2.7%. US copper fell 3.35%.
"Today's move is a vote of no confidence in the President's speech last night," the chief investment officer of Covenant Investors in the US told Reuters. Oil declined but its losses were cushioned by the threat from a storm in the Gulf of Mexico. Crude for October delivery fell $2.04 or 2.3% to US$87.01 a barrel after earlier going as low as $85.63.
Silver was caught in the general run from metals, but gold shook off early weakness to inch higher. Gold for December delivery rallied $3.70 or 0.2% to US$1,861.20 an ounce. December silver sagged $1.10 or 2.6% to US$41.43 an ounce.
TRADING THEMES THIS WEEK
BACK-TESTING THE REBOUND?: Friday's heavy overseas sell-off will likely send the ASX back towards last week's lows this morning. For the last month, the ASX 200 has been trading in a range between roughly 4075 and 4350 and has twice tested both upside and downside. A breakout in either direction will likely determine the short-term outlook.
GREEK DEFAULT?: More worrying signs out of Europe over the weekend. Bloomberg is reporting that Germany may have resigned itself to a Greek sovereign default. If Germany has had enough of propping its ailing partners in the great European experiment and is prepared to let Greece default, the ramifications will rattle equity markets for months to come. In addition, there are reports that Moody's is set to downgrade several important French banks this week because of their exposure to Greek debt. Read more here.
US CONSUMERS: Aside from Europe's woes, US markets are likely to be driven this week by the US consumer's reaction to last month's volatile markets and storm on the east coast. The week's key reports are likely to be retail sales on Wednesday night and consumer sentiment on Friday. Inflation and manufacturing will also come under the spotlight (see below).
ECONOMIC NEWS: This week's domestic calendar includes: the trade balance (11.30 am AEST today); business confidence (tomorrow); consumer sentiment, housing starts (Wed); and inflation expectations, vehicle sales and RBA Bulletin (Thu). Highlights in the US include: the import price index (Tue); retail sales, producer price index, Core PPI, inventories (Wed); weekly jobless claims, consumer price index, Core CPI, Empire state index, industrial production, capacity utilisation, Philly Fed (Thu); and consumer sentiment (Fri).
