ASX poised to open flat after volatile session on Wall St

Australian shares appear set to open flat after a volatile session on Wall Street which, in the end, recouped a significant proportion of its early losses. $A steady. ASX futures flat at 6.20am AEDT.

Shares on Wall Street once again traded in a wide range with the Dow tumbling almost 550 points at one point before paring its losses to be down less than 90 points with about an hour left of the session.

"Even stepping back from the volatility in stock markets around the world this week, global equities have clearly been weakening for a while, and are likely to do so again by the end of next year in our view," Capital Economics' Oliver Jones said.

Mr Jones said cyclical sectors have begun to underperform their defensive peers, which he thinks reflects concern about the growth outlook for both the US and China.

"Although the US GDP data due later this week are likely to be fairly strong, there are signs that investors are starting to focus on the effects of tighter monetary policy on growth there further ahead," Mr Jones also said. "And there is already clear evidence of weakness in the data from China.

"We have been making the case for a few months now that cyclical sectors would not continue to drive stock markets higher," Mr Jones said. "And in light of our forecasts that China's economy will continue to lose momentum, and that the US economy will slow sharply in 2019, we expect them to continue to underperform. This would be consistent with what has happened in previous economic downturns."

Today's Agenda

Local data: Skilled vacancies September

Overseas data: Japan Nikkei manufacturing PMI October; Euro zone Markit manufacturing and services October; US FHFA house prices August, Markit manufacturing PMI October, New home sales September; US Fed Beige Book

Market Highlights

SPI futures flat at 5815 at 6.20am AEDT

AUD +0.1% to 70.88 US cents

On Wall St: Dow -0.5% S&P 500 -0.6% Nasdaq -0.4%

In New York, BHP -2% Rio -1.8% Atlassian -0.3%

In Europe: Stoxx 50 -1.5% FTSE -1.2% CAC -1.7% DAX -2.2%

Spot gold +0.8% to $US1231.96 an ounce at 2.32pm New York time

Brent crude -4.6% to $US76.16 a barrel

US oil -4.7% to $US66.12 a barrel

Iron ore +0.7% to $US74.31 a tonne

Dalian iron ore flat at 523 yuan

LME aluminium - 0.3% to $US2001 a tonne

LME copper -0.7% to $US6196 a tonne

2-year yield: US 2.87% Australia 2.01%

5-year yield: US 3.00% Australia 2.21%

10-year yield: US 3.16% Australia 2.67% Germany 0.41% Italy 3.59%

US-Australia 10-year yield gap as of 5.55am AEDT: 49 basis points

From Today's Financial Review

The rise of Young Rich money men: As banks retreat and technology advances, a cohort of Young Rich fintech entrepreneurs is emerging. Now regulators are shining a spotlight on the lenders riding the boom. Who are these new money men?

Unlock billions in super lending: Paul Keating has joined super fund managers and bankers in calling for government support to promote an active secondary market for corporate loans.

ATO's 50 secret promoter undertakings: The Australian Taxation Office has entered into 50 legal agreements, mainly with accountants and lawyers, in which advisers promise to stop promoting tax exploitation schemes.

United States

Wall Street sank on Tuesday, continuing a punishing month for US stocks, as dismal outlook from industrial bellwethers Caterpillar and 3M sparked concerns over corporate growth and added to worries ranging from China's slowdown to Saudi Arabia's diplomatic isolation.

The S&P 500 has now declined for five straight sessions and had finished higher on only four of the 17 trading days this month. The benchmark index has lost 7.2 per cent from its record closing high.

The Dow Jones Industrial Average is 6.8 per cent down from its all-time closing high and the Nasdaq 9 per cent. If the Nasdaq closes down 10 per cent or more from its closing high, a level it hit in the session, it would confirm a correction.

Caterpillar tumbled 5.8 per cent after the heavy-duty equipment maker maintained its 2018 earnings forecast, after having raised it in the previous two quarters. 3M slid 5.2 per cent after cutting its full-year profit outlook due to currency headwinds.

That reignited worries over the impact of rising borrowing costs, wages and tariffs on corporate profits and caused S&P industrial stocks to slide 2.2 per cent.

Europe

Brussels turns the screws on Italy: The European Commission has told Italy it has just three weeks to revise its budget or risk hefty fines, but Rome says there's no plan B.

Britain's May battens down the Brexit hatches: British PM Theresa May has made an impassioned plea to her MPs to back her Brexit plan as negotiations go down to the wire and leadership speculation swirls.

European shares fell sharply on Tuesday as disappointing company results, particularly in the tech sector and a mix of political worries including Italy's budget woes piled pressure on markets.

The pan-European STOXX 600 benchmark index fell for its fifth straight day, ending down 1.6 per cent at its lowest level since December 2016, while Germany's DAX lost 2.2 per cent, also at December 2016 lows.

Italy's FTSE MIB dropped 0.9 per cent to February 2017 lows after the European Commission rejected the country's draft budget and asked Rome to submit a new one within three weeks.

"The euro zone found no way to staunch its bleeding as Tuesday went on; in fact, with the European Commission confirming it was rejecting Italy's budget the region's wounds only deepened," said Spreadex analyst Connor Campbell.

The European tech sector led sectoral fallers, shedding 3.7 per cent after downbeat updates from Apple chip supplier AMS and French IT services company Atos.

Asia

China grain imports plunge in September: Chinese imports of grains such as sorghum plunged in September from the year before, customs data showed on Tuesday, hit by escalating trade tensions with the United States and high prices elsewhere.

China's main stock indexes resumed a downward spiral Tuesday, a day after the blue-chip index posted its biggest gains in nearly three years, as investors remained pessimistic about economic prospects and risks posed by shares pledged for loans.

At the close, the CSI300 index was down 2.7 per cent. The Shanghai Composite index lost 2.3 per cent.

The CSI300 has lost 7.4 per cent this month, and the Shanghai index is down 8 per cent.

"There has already been a turnaround in policy and liquidity elements, but the situation of slowing economic growth has not improved, and the Sino-US trade conflict in particular has boosted pessimistic expectations," Guosheng Securities analysts said in a note.

Coordinated messages of support from senior Chinese officials on the weekend - aimed at easing investor concerns over the risks posed by 4.3 trillion yuan ($US619.58 billion) worth of shares pledged for loans - helped China's markets to rally on Monday, driving the CSI300 to its strongest day since November 2015.

Sectors fell across the board. The financial sector sub-index ended 2.2 per cent lower, the consumer staples sector fell 6 per cent, the real estate index lost 2.4 per cent and the healthcare sub-index gave up 2.7 per cent.

Some 17.83 billion shares changed hands on the Shanghai exchange, about 143 per cent of the market's 30-day moving average of 12.49 billion shares a day.

Stocks fared no better in Hong Kong, with the main Hang Seng Index closing down 3.1 per cent.

In Japan, the Nikkei index closed down 2.7 per cent.

Currencies

Food and oil could spark inflation surprise: Rising food and oil prices and the falling Aussie dollar could drive a surprisingly strong lift in headline inflation over the coming months.

Commodities

Marex Spectron's take on the LME's day: "The complex came under pressure overnight in sympathy with the decline in global stock markets and rally in US Treasuries, as the market reverted to risk-off mode. There was a modest rebound in the late afternoon, although most pulled back into the close. Noticeably the dollar index, which had rallied to highs not seen since August in the early London am, is currently sitting near the session lows. Base metals closed mixed, while curves generally eased. All traded in very tight ranges on light turnover.

"Meanwhile, crude oil sees further liquidation of spec length, both old and new. Saudi Energy Minister Khalid Al-Falih commented that OPEC and allies are in "produce as much as you can mode", which appeared to spur selling. Brent and WTI both down c. 4.5% at time of writing.

MS on aluminium: "Until midday had traded in a range of just $9. The afternoon brought about a bit more whip with Ali coming under presure into the close to settle near the lows of the session at $2001 (-0.1%). As per table above just 11.1k lots traded by 17:30, -24% of the 20-day avg. We note that in the last 5 trading days, 48k lots of Ali has traded, of which 28k lots or 58% has been in the $2010-2020 range. Supp into Friday's low of $1996.5. Ali exhibits the smallest short of the complex on our estimates at just 1.6% of OI (cob Thurs). This morning saw LME on-warrant stocks dip just 2900t to 747kt (still up 142kt from 4th Oct low of 606kt). The curve was offered with Dec-Jan easing $5.5 to $10.5b. On the wires today China Customs reported that Alumina exports in Sept rose to the highest level this year, reaching 165.8kt (+3447% y/y) due to the arb being open in Aug."

MS on copper: "Spec and CTA selling noted. Fell to a low of $6148 in the late afternoon before a modest bounce. Settles at $6196 (-0.7%). Supp into last week's low in the $6120-25 area. Curve eased notably (as with Ali and Zinc) with Dec18-19 moving $12 to $14.5c. The spec short is modest on our estimates at 4.1% of OI (cob Thurs) versus the year-to-date peak of 30% of OI. SHFE agg OI was little changed this afternoon, although at a total of c. 520k lots, this is at levels not seen since Mar 2017. Global exchange stocks and bonded inventory have stabilised around 890-900kt over the past couple of weeks, at lows not seen since Dec 2016. As an aside, we note that the correlation between SHComp and Copper 3m has been strong this year, with the Chinese stocks generally leading Copper. However Oct has seen a noteworthy breakdown in this relationship with SHComp under pressure while Copper has remained largely rangebound."

Australian Sharemarket

Pratt roundtable to ignite private debt: The plunge in the equity market has provided the perfect backdrop for a robust discussion about the dangers posed by Australia's entrenched preference for investing in equities to the exclusion of fixed interest.

Future Fund's Peter Costello in Labor sights: A political storm is brewing over Peter Costello's leadership of the government's $149 billion Future Fund.

Australian shares fell for a third straight session on Tuesday as energy and financial stocks pushed the market lower.

The S&P/ASX 200 Index dropped 61.8 points, or 1.1 per cent, to 5843.1, as the index heavyweights across the board were weighed by poor investor sentiment.

"Growing uncertainty in all corners of the globe has brought renewed uncertainty to the markets," said City Index research analyst Gary Burton. "Weakness in Australian banking stocks continues to lower the underlying 200 index."

The financial sector was broadly weaker, falling on the performance of the major banks. Westpac fell 1.2 per cent to $26.33, ANZ dropped 1.9 per cent to $25.29, Commonwealth Bank closed 1.1 per cent lower at $66.61 and NAB slid 1.2 per cent to $25.17.

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