Daytrading September 2 pre-market

Morning traders. Thanks Trees and after-market regulars. Tin hats on.

Market wrap:

The ASX 200 looks set for a third straight loss after weak Chinese and US economic data triggered Wall Street's third heaviest fall of the year.

The September SPI200 futures contract fell 62 points or 1.2% to 4997, positioning the benchmark Australian equity index for a potential test of last week's lows. Market heavyweight BHP tanked almost 7.5% in US trade overnight as the Australian dollar plumbed a six-year low near 70 US cents.   

US stocks tumbled almost 3% overnight as a contraction in Chinese factory output and the prospect of a rate rise as early as this month pushed traders towards the exits. The S&P 500 sank 58 points or 2.96% to re-enter correct territory, defined as a decline of at least 10% from the index's peak. The Dow gave up as much as 548 points before a late bounce trimmed its loss to 470 points or 2.84%. The Nasdaq lost 140 points or 2.94%.

“The problem is, as much as China is the catalyst for this, it’s also that we’re seeing weakness in fundamentals here,” Matt Maley, equity strategist at Miller Tabak in the US, told Bloomberg. “A lot of company earnings were hurt by China in the second quarter and it’s only gotten worse. People are losing confidence with the whole situation there breaking down, not just in the stock market but in data as well.”

A global retreat accelerated following news yesterday that China's official manufacturing purchasing managers' index slumped to a three-year low last month. A rival private gauge marked its lowest point since March 2009. Adding to concerns about the slowing Chinese economy, services activity - which more closely reflects domestic demand - also deteriorated. Read more here.

Europe's benchmark index, the Stoxx Europe 600, slid 2.73%, Germany's DAX 2.38%, France's CAC 2.4% and Britain's FTSE 3.03%. The Australian dollar fell more than 1% to 70.16 US cents, its lowest level since April 2009, and was lately trading at 70.17 US cents. Read more here.

US analysts highlighted soft domestic manufacturing data last night as evidence that the slowdown in Chinese demand is having an impact on America. The Institute for Supply Management’s manufacturing index dropped to a two-year low of 51.1 last month from 52.7 in July. Read more here.

"US manufacturing is obviously being impacted by what is going on overseas combined with the stronger dollar and weakness in the oil patch," Peter Boockvar, chief market analyst at The Lindsey Group in the US, told CNBC. "While the US economy is very internally dependent in terms of growth, it is certainly not immune to softness outside (there will not be decoupling) and we know has been growing only modestly for years anyway because of very low productivity growth and only moderate wage growth."

The prospect of a rate hike at this month's meeting also weighed after Boston Federal Reserve President Eric Rosengren - a non-voting member of the Fed - said the central bank's jobs target for raising rates had "largely been met". Read more here.

The VIX, Wall Street's "fear gauge", climbed to its highest level since last Wednesday. The index was lately up 10.45% at 31.4, well short of last week's peak above 50.

All ten S&P 500 industry groups closed sharply lower. The energy ETF tumbled 3.52% after crude oil hit reverse following a three-session rally when West Texas Intermediate for October delivery rebounded as much as 27%. WTI settled $3.79 or 7.7% lower overnight at US$45.41 a barrel and was lately down 10.2% at US$44.17.

“The oil drop is normal technical selling and not a surprise after three days of big gains,” Colin Cieszynski, chief market strategist at CMC Markets, told MarketWatch. “Short-term momentum swing traders would want to step out at some point.”

US traders went after companies that depend most on Chinese demand. BHP slumped 7.47% and Rio Tinto 6.54% in US trade. Spot iron ore for import to China yesterday held steady at US$55.70 a dry ton.

A two-week high in gold was not enough to stem selling among US gold miners. The NYSE Arca Gold Bugs index declined 2.1%. Gold for December delivery settled $7.30 or 0.6% ahead at US$1,139.80 an ounce.

Copper took its lead from the Chinese factory disappointment. London copper declined 1.3%, lead 0.2% and nickel 3.2%. Tin rose 3% and zinc less than 0.1%. Aluminium closed unchanged. US copper for September delivery was recently down 1.9% at US$2.29 a pound.

TRADING THEMES TODAY

DEAD CAT FADES AHEAD OF GDP: World markets look set on testing last week's panic-lows as what looks increasing like a dead cat bounce continued to unwind overnight. The ASX has been leading the retreat since the start of the week and therefore may not have as far to fall today. "May" being the key word because rationality goes out the window once fear takes hold. There is a more ominous tone to this week's retreat, in my opinion. While the first dive was wild and volatile, offering good bounce opportunities, the declines this week have been grinding and unrelenting. Hopes of an intraday rebound today likely rest with the 11.30am EST release of domestic Q2 GDP data. However, the outlook is not great, following yesterday's dire current account data. Output is expected to be a tepid 0.4%, according to Forex Factory, down from 0.9% in the first three months of the year.

ECONOMIC NEWS: Second-quarter GDP figures are due at 11.30am EST. Tonight's US highlights include ADP non-farm payrolls, Federal Reserve Beige Book, factory orders, crude oil inventories and revised non-farm productivity and labour costs.

Good luck to all.