Stocks are set to recoup some of yesterday's losses after reports of a rescue plan for Spain helped US stocks pare initial losses following a round of weak global economic data.
The December SPI 200 futures contract, now the most active, ended the night session 12 points or 0.3% ahead at 4417 after blue chips turned positive in the US and key commodities staged a late recovery.
The Dow sagged 75 points at the open as economic reports from Europe and the US added to concerns about a global slowdown following yesterday's soft Chinese manufacturing and Japanese trade figures. But the blue chips index closed 19 points or 0.14% higher following claims that the European Union is working on an economic reform program that will allow Spain to access EU bailout funds. The S&P 500 trimmed a 10-point loss to one point or 0.07% and the Nasdaq lost 0.21%.
The Financial Times said European Union officials are working on a Spanish economic reform program to be announced next Thursday that will clear the way for Spain to formally apply for a bailout. Such a move would end months of uncertainty over the outlook for Spain. Read more here.
The night's economic data did little to lift the gloom following yesterday's soft Chinese and Japanese reports. Services and manufacturing activity in the euro-zone fell to a three-year low this month. Jobless claims in the US fell less than expected. An index of US leading economic indicators fell deteriorated last month. Manufacturing in the Philadelphia region continued to contract but at a slower pace.
"We had a strong rally based on aggressive central bank actions, this week we're getting the reality that economic activity is weak," a senior strategist at RidgeWorth Capital Management in the US told Bloomberg. "The slowdown in China is not over and it is likely that Europe will officially enter into a recession."
European markets took their cues from weakness in Asia yesterday, where the Shanghai Composite hit a three-and-a-half year low. Germany's DAX lost 0.02%, France's CAC 0.62% and Britain's FTSE 0.57%.
Oil recently turned positive following a four-session losing run that had seen it lose more than 7%. West Texas crude for October delivery was up 16 cents or 0.2% at US$92.14 a barrel after falling as low as US$90.66 overnight.
The recent recovery in industrial metals was pressured by yesterday's Chinese manufacturing data, which showed an 11th straight month of contraction. US copper for December delivery was recently down four cents or 0.9% at US$3.78 a pound. In London, copper retreated 1%, aluminium 1.4%, lead 0.3%, tin 4% and zinc 0.6%. Nickel added 0.8%.
Gold showed resilience in the face of a rising US dollar and weakening equities. Gold for December delivery was recently down $1 or less than 0.1% at US$1,770.70 an ounce.
TRADING THEMES TODAY
BULLS STILL IN CONTROL: An interesting night on overseas markets showed there are still plenty of bulls in the US ready to buy dips. The economic news offered ample reason for a pullback but the bulls found a positive to justify another round of buying. Small caps lagged the wider market, with the Russell 2000 losing 0.53%. Banks and miners were mostly weak, which doesn't bode that well for our market. Biotechs, utilities and consumer stocks bucked the downtrend, which suggests a leaning towards the defensive. Shanghai is now the big concern for our market after it tumbled through support yesterday to the lowest level since February 2009. No sign of a bottom there yet.
ECONOMIC NEWS: The Conference Board's leading index for Australia is due at 10am EST. That's the highlight as as busy week in Europe and the US closes without any significant scheduled news tonight.
