In Asian trade, stocks fell for the third straight session following disappointing sales and earnings forecasts by US companies. The Nikkei 225 is the worst performer, down 2% while the Hang Seng, Kospi and Shanghai Composite are all weaker between 0.6% and 1.2%.

In Australia, the ASX 200 closed 1.5% lower at 4413, just off its session lows. Losses for the day were broad based with the heavyweight materials, financial and energy sectors all convincingly in the red. Having closed above 4600 earlier in the week the market has since retraced more than 4% as investors appear to once again be questioning the underlying strength of the global economic recovery.

We've seen a reasonable amount of selling this week so there was evidence this morning of some traders covering their short positions, which boosted the overall market. However, it's drifted lower in the last few hours, seemingly falling under its own weight. Although the market is down more than 4% for the week, the selling seems orderly as there isn't much volume or fear in the market.

To put this in perspective, we had seen a 10.5% rise from the markets May low to this week's high, so it's not too alarming to see it pull back this week.

Renewed concern about Greek sovereign default risk, combined with stronger-than-expected US financial regulation and recent weakness in US economic data have equity markets up against the ropes.

Turning our attention to the market and it was the materials sector that ended the session 1.7% lower despite modestly higher base metal prices overnight. Enthusiasm for Rudd' s demise and what it might mean for the RSPT proved short lived with heavyweight miners BHP Billiton and Rio Tinto closing weaker by 2.1% and 3% respectively while Fortescue Metals was down 4%. While most of resource space ended in the red, one pocket of strength was the gold sector with gold prices continuing to benefit from the current global uncertainty. Newcrest Mining and Lihir Gold were higher by 1% and 1.6% respectively.

In a note from UBS, it said the new Australian PM Julia Gillard has opened the door for a period of negotiations on the planned Resource Super Profits Tax. The broker said importantly, she has said the government must not only 'consult' but also 'negotiate', suggesting some compromise could eventually be forthcoming. UBS said it's still highly likely that a mining tax will be introduced. However, following yesterday, it seems almost assured that a diluted version of the initial RSPT structure will eventuate. UBS notes that any resolution on the tax may be pushed further out into the future, creating a longer period of uncertainty for the sector. In a separate comment from RBS, it said Gillard's statement that she plans negotiations with the mining industry means that the worst-case scenario that had been factored in by market "will not now play out" and a "meaningful change to the policy is possible". Therefore, the broker believes the winners should include the miners, energy and engineering stocks, as presumably, recently 'cancelled' projects are back under consideration.

The energy sector also sustained heavy losses falling 1.6% with sentiment towards the sector, particularly in the US, continuing to be profoundly negative. With the oil price continuing to drift it was not surprising to see major energy names including Woodside Petroleum, Santos and Origin Energy all weaker between 0.5% and 2.9%. After yesterday's post market profit downgrade Caltex had a shocker, slumping 6.7%.

The company issued guidance foreshadowing a big fall in its first-half profit. Australia's only listed oil refiner, 50%-owned by Chevron, expects operating profit, which strips out the value of its stockpiles, of $130 - $150 million and $140 - $160 million excluding significant items. The guidance was below analysts' forecasts, so it's not surprising the stock is down more than 6%. The company pinned the fall on a volatile AUD, which makes oil purchases more expensive if it falls sharply, but can reduce Caltex's refiner margin if it stays strong. In a note from UBS, it kept its 'buy' rating, but reduced its price target slightly to $13.05 from $13.24. UBS was forecasting an operating profit of $176 million. It said the announcement was disappointing given the March quarter operating profit was $130 million, refining margins were strong for year to date, and transport fuel production was in line with the broker's forecasts.

Financial names came under pressure too, finishing the session 1.6% weaker after concerns over stronger-than-expected financial regulation in the US presented broadly lower opening leads. Macquarie Group was the worst performer for the second straight day, losing 2.8% while the big four banks were all down between 1.6% and 2.4%.

In a report from Morgan Stanley, it cut Macquarie Group to 'equalweight' from 'overweight'. It said the road to recovery and return on equity is getting longer. The broker cited the challenging operating environment, which is constraining a recovery in revenue, particularly in advisory and underwriting fees, equity derivatives, trading income and management fees. Also, regulatory uncertainty and fragile investment markets, as well as lower trading multiples for investment banks due to the more uncertain outlook are weighing on the stock. The broker cut its per-share earnings forecasts by 17% in fiscal 2011 and 13% in fiscal 2012.

Ben Potter Research Analyst

IG Markets - CFD trading