MARKETS SPECTATOR: Smoking barrels

In overnight market action, US stocks managed to close the session in positive territory. However, while the housing sector was buoyed by stronger-than-anticipated existing home sales numbers, crude oil prices and energy names continued to see strong selling pressure as oil inventory numbers came in much higher than expected.

The technology-heavy NASDAQ was the best performer, adding 0.2 per cent, while the S&P 500 and Dow Jones Industrial Average both eked out gains of 0.1 per cent.

Looking ahead to the local session it's likely to be another fairly subdued event, although we do have the Chinese HSBC Flash Manufacturing PMI due at 1230 AEST which could liven things up. As it stands, the benchmark S&P/ASX 200 index is set to open around the flat line after SPI futures slid 8 points to 4410 overnight.

Once again, the big mover overnight was crude oil prices, which slumped more than 3 per cent following a much bigger-than-expected jump in crude oil inventory levels. The market had been forecasting a decline of 0.2 million barrels versus a leap of 8.5 million; hardly surprising to see why the bears jumped all over the black gold! Hence, the major oilers were the biggest drag on overnight markets and are likely to do the same in Australia.

In other heavily weighted sectors, materials names look like they may be set for a relatively flat start to trade following flat leads from London for both Rio Tinto and BHP Billiton. Elsewhere, the iron ore price remained at $US109.50/t while base metals on the LME were mixed at best.

Following another disappointing result in the retail sector from David Jones yesterday, traders will be keeping a close eye on Kathmandu's result due out this morning. Given the overall weakness in the sector, it's hard to see how the outdoor apparel retailer couldn't be affected. Its share price has seen some selling pressure in the last few days so it looks like market participants are expecting another victim of arguably the worst retailing climate for at least 10 years.

As mentioned above, the major release for the day will be the latest read into HSBC Flash Manufacturing numbers from China. There aren't any expectations for the figure although last month it showed a reading of 47.6. Given the heightened concern over China and the state of their economy, today's release has the potential to move the market. Given the strength recently seen and the fact that we're in the latter stages of the week, an in-line or weaker-than-expected figure could easily be the trigger needed for the profit takers to move in.