Morning traders. Thanks Trees and after-market regulars.
Market wrap:
Australian shares look set to test two-year lows this morning after Wall Street capped its second-worst week of the year with a sharp fall ahead of today's US public holiday.
The September SPI200 futures contract declined 28 points or almost 0.6% to 4997 as a global 'risk-off' session on Friday saw declines in equities and commodities.
US stocks fell more than 1.5% after the August jobs report did little to clear uncertainty over whether the Federal Reserve will raise its key rate this month, and as traders fretted about Wall Street being closed for Labor Day when China resumes trade this morning following a four-day public holiday. The S&P 500 dived 30 points or 1.53% to extend its loss for the week to 3.4%. The Dow gave up 272 points or 1.66% and the Nasdaq 50 points or 1.05%.
“There’s a risk-off mentality rather than a risk-on one going into a three-day weekend for the US and after the Chinese markets have been closed for four days,” Mark Spellman, fund manager at Alpine Funds in the US, told
Bloomberg. “The weakness in the market is due primarily to continued global growth concerns.”
With reports that the Chinese government intervened in the share market last week to calm volatility ahead of a public holiday to market the 70th anniversary of the end of WWII, traders are worried about how the market will perform this week without government support. Most Asian markets sold off on Friday, including a 2.15% fall in Japan. China is due to release trade data tomorrow and inflation figures on Thursday.
While the headline figure on the August US non-farm payrolls report was lower than expected, analysts found enough strength in the underlying detail to keep a rate rise on the table when the central bank meets in the middle of this month. The economy added 173,000 workers in August, less than the 220,000 that economists polled by Bloomberg expected. However, the unemployment rate fell to 5.1%, the lowest level since April 2008, average hourly earnings increased by 0.3%, a sign that wage pressures are growing, and July and June employment gains were upwardly revised from 215,000 to 245,000 and from 231,000 to 245,000, respectively.
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"I think the report is stronger than the headline. As a result it probably gives the Fed what it needs to raise rates in September but it also gives it cover if it decides not to," Kate Warne, investment strategist at Edward Jones in the US, told
CNBC. "It does provide evidence that the economy continues to improve."
Traders convinced that the Fed cannot afford to raise rates in a time of elevated market volatility blanched after Richmond Fed President Jeffrey Lacker, a noted Fed hawk, said on Friday that current rate levels near zero were unjustifiable. "It's time to align our monetary policy with the significant progress we have made," Lacker declared in a speech titled "The Case Against Further Delay".
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European markets closed near their lows for the week as the prospect of a US rate increase added to pressure from soft German factory data. Orders for German-made goods dropped 1.4% in July, more than twice what analysts expected. The Stoxx Europe 600 dived 2.52%, Germany's DAX 2.71%, France's CAC 2.81% and Britain's FTSE 2.44%.
Financials and raw materials led declines among the ten S&P industry groups. BHP lost 3.57% and Rio Tinto 3.82% in US trade after spot iron ore for import to China shed 80 cents to US$55 a dry ton.
The US energy ETF dropped 1.65% after crude oil pared a second week of gains. West Texas Intermediate crude oil for October delivery settled 70 cents or 1.5% lower at US$46.05 a barrel on Friday, but 1.8% ahead for the week.
Base metals reversed Thursday's gains as traders concluded there was enough strength in US jobs data for a September rate hike to remain possible. In London, copper gave up 2.4%, aluminium 1.4%, lead 3.1%, nickel 1%, tin 1.2% and zinc 1.4%. US copper for September delivery slid 2.55% to US$2.33 a pound.
Gold quickly erased a brief spike following the release of the jobs data, closing at a two-week low. Gold for December delivery settled $3.10 or 0.3% lower at US$1,121.40 an ounce. The NYSE Arca Gold Bugs index eased 0.45%.
The dollar was this morning buying 69.32 US cents.
TRADING THEMES TODAY
WATCHING CHINA: Equity markets remain in a funk as we move deeper into what is historically the weakest month of the year, in the US at least. Friday's US jobs data offered something for both bulls and bears, but did nothing to lift the uncertainty ahead of the central bank's rate decision the week after next. When in doubt, traders opt out, so down went the indexes. Part of the uncertainty concerns how Chinese equities will perform this week now the government no longer needs to 'window dress' the market ahead of last week's show of strength. There is fear that without government support the Shanghai Composite may drop like a stone. We'll find out in an hour or two. Last month's two-year closing low on the XJO provided good market support on Friday, but the overall index trend has been negative since April and does not offer much cause for optimism heading into what could be another volatile week on world markets.
ECONOMIC NEWS: The AIG Construction Index is due at 9.30am EST, followed by August job advertising data at 11.30am. Wall Street is closed tonight for the Labor Day public holiday
Good luck to all.
