Market wrap: Australian stocks face an uncertain start as traders weigh a weekend of talks in Washington against a bruising session for commodities and modest gains on Wall Street on Friday.
The December SPI futures contract closed nine point or 0.2% weaker on Saturday morning at 3921 as oil and metals tumbled but Australian miners pared weekly losses in US trade.
US stocks rallied at the start of a weekend of meetings in Washington on Friday as G20 officials pledged a united front to deal with Europe's sovereign debt problems. The S&P 500 rallied 0.61% as European governments accelerated plans to create a permanent bailout fund, but ended with a weekly loss of 6.5%. The Dow added 38 points or 0.35% but its weekly loss of 6.4% was the blue-chip index's heaviest since the height of the GFC.
Two indexes widely seen as proxies for the US economy plunged last week. The Morgan Stanley Cyclical Index fell 11% and the Dow Jones Transportation Average lost 9.6%. Materials companies fared the worst of the S&P 500's 10 industry groups, falling 12%. However, analysts pointed to significant potential for share gains if risk aversion abates.
"Any good news in this market is all upside from here," Marc Pado, US market strategist at Cantor Fitzgerald, told MarketWatch. "So much bad news has already been baked into the cake, whether it's our own dysfunctional government, the threat of the euro-zone falling apart, our 10-year yield falling to an all-time low ? all of this stuff is based on dire expectations."
European leaders came under further pressure over the weekend to cauterise the sovereign debt problem which has sapped investor confidence over recent weeks. US Treasury Secretary Tim Geithner and People's Bank of China Governor Zhou Xiaochuan used the International Monetary Fund's annual meeting to call for faster action. However, IMF Managing Director Christine Lagarde warned the fund's US$384 billion lending chest may not be deep enough if the global economy continues to sour.
Metals were pummelled again on Friday as a flight to cash and US Treasuries hammered silver, gold and copper. The S&P's commodities index hit a nine-month low.
"We're in a 'risk-off' mentality," a co-founder of Logic Advisors in the US told Bloomberg. "Some of it certainly is a case of 'sell the winning assets to meet the margin calls for the losing assets'. We're seeing massive selling across the spectrum in commodities."
Silver suffered its worst one-day fall since 1979, plunging 18% before paring its loss to US$5.56 or 15.2%. Gold had its largest settlement percentage loss in five years, falling more than US$100. Gold for December delivery settled $101.90 lower at $1,639.80 an ounce but later trimmed the fall to $81.80 or 4.7%. The falls followed further hikes in trading margin requirements by CME Group, owner of the main metals and energy exchanges in the US.
Copper hit a one-year low and tin at one point fell more than 14% and nickel more than 11% during a brutal session in London. Copper ended down 5.1%, aluminium 1%, lead 8.9%, nickel 3.9%, tin 1.8% and zinc 4.9%. US copper closed 4.9% weaker. Despite falls across the commodities complex, BHP eked out a gain of 0.7% in US trade, Rio Tinto 0.8% and Alumina 3.6%.
Oil ended a week where it fell more than 9% with a modest loss on Friday. Crude oil for November delivery fell 55 cents or 0.7% to US$79.96 a barrel.
European markets rallied as investors anticipated action from international policy-makers over Europe's debt problems. Britain's FTSE advanced 0.6%, Germany's DAX 0.63% and France's CAC 1.02%.
TRADING THEMES THIS WEEK
REACTION TO WASHINGTON TALK-FESTS: Global equity markets look oversold in the short term, with significant potential for a rebound this week. The question is whether there was enough substance in a weekend of IMF/G20 talks to inspire a bounce. Politicians and policy-makers from around the globe said all the right things, but the meetings appeared to deliver little in the way of concrete action. Our market will be among the first to react this morning.
COMMODITIES ROUT: Did we see capitulation in metals markets on Friday? The scale of the falls invites the question. Silver, nickel and tin all suffered double-digit plunges and copper, gold and lead fell unusually heavily. Some buyer interest late in the session suggests the possibility of a short-term bottom. Mining stocks, especially at the smaller end, likely face a torrid start to the week, but there may be good buying opportunities before the week is out.
ECONOMIC NEWS: An unusually light week for scheduled domestic news includes new home sales on Wednesday and private sector credit on Friday. Japan releases retail sales on Thursday and a slab of data on Friday. China releases final manufacturing figures on Friday. Highlights in the US include: new home sales (tonight); consumer confidence (tomorrow); durable goods orders (Wed); weekly jobless claims, GDP (Thu); and personal income, consumer spending, core PCE price index and consumer sentiment Fri).
