In Asia, regional markets are all lower following another night of negative US leads and disappointing Chinese PMI numbers. The PMI came in lower than expected, with a separate report from the statistics bureau showing ugly conditions for the nation's exporters. The Nikkei 225 is the worst performer, down 2.2%, with exporters coming under pressure. Elsewhere, with the Hang Seng on holiday, the Kospi and Shanghai Composite are 1.1% and 0.1% weaker respectively.

In Australia, the ASX 200 lost 1.5% to finish the session at 4237.5 having traded to a session low of 4217. Unfortunately, the beginning of the new financial year was not enough to rid the market of the current bout of global uncertainty and risk aversion it is experiencing, with seemingly little in the immediate future to turn things around. Losses for the day were broad based with the heavyweight materials, financial, energy and industrial sectors all down significantly.

The market was clearly hampered today by the weak finish to the US session and the softer-than-expected manufacturing data out of China. While the Chinese data does suggest some slowdown in activity levels, wasn't this what the market was wanting? The market never ceases to amaze when it comes to China - it's either growing too quickly or there are concerns it may be stalling.

Either way the market loves to sell-off on Chinese economic data. As China is seen as the beacon of the global economic recovery maybe we're all a bit overly sensitive when it comes to China's growth prospects.

Investor sentiment is certainly negative at the moment, as witnessed by the buying of defensive assets. The market is pricing in a double dip recession, both in Europe and the US. There's no doubt this would have serious consequences for the local market.

The upcoming US earnings season is going to be crucial in determining the path for equities during the second half of 2010. The big question on everyone's mind is whether or not a positive US earnings season can arrest the recent correction and absorb the negative sentiment.

In economic news, Aussie May retail sales came in worse than expected, +0.2% vs consensus +0.3%. In a note from Moody's, it said, despite the weaker result there was mostly positives to take away from the number. Moody's noted that it was the third-consecutive monthly increase and that aligns with interest rate increases in each of those months, adding that even with RBA hikes and a gloomy global outlook, Aussie consumer spending is holding up. Separately, Australian building approvals fell 6.6% in May from the previous month versus forecasts for an unchanged reading.

On the local market it was surprising to see the typically defensive consumer staples sector as one of the worst performers, down 2%. Wesfarmers was the standout decliner, losing 3.1% while the likes of Coca-Cola Amatil, Goodman Fielder, Fosters Group and Woolworths were weaker between 1.4% and 2.3%.

Financial names saw selling pressure after another set of weak overnight leads. The sector fell 1.7%, with QBE Insurance the worst performer, down 2.8%. The big four banks didn't fare much better, all lower between 1.1% and 2.5%.

The energy sector continued its recent retreat, falling another 1.6% on the back of further declines in crude oil futures. Paladin Energy and WorleyParsons were the biggest decliners, losing 4.5% and 4.6% respectively. Elsewhere, Whitehaven Coal, Caltex, Origin Energy and Oil Search were all down between 1.8% and 3.1%.

The materials sector was the worst performing sector for most of the session before a report hit the newspapers saying the government and miners were very close to agreeing on a revised version of the RSPT. Consequently, the sector rallied significantly, closing 1.2% weaker after being down as much as 2.1% this morning.

In short, it's being reported that the Government has agreed to increase the rate at which the tax kicks in to about 12%, to exclude nickel mining from the regime and to rework the treatment of depreciation of assets.

Nonetheless, Fortescue led the group lower, dropping 2.9% while Rio Tinto, Alumina, BHP and Bluescope Steel were all down between 1% and 2.3%.

On a separate note, a report from RBS said it kept its buy rating on BHP Billiton but lowered its price target slightly to $47.63 from $47.87. The broker believes the stock continues to offer a compelling investment case as it's trading on a FY11 PER of 8x and a 20% discount to its net present value estimate. RBS said global macroeconomic issues are currently acting as a headwind for a rerating, although a relaxation of the resource super profits tax, which is likely over the coming weeks (or days), could result in a positive market reaction.

Elsewhere, in a strategy report from Deutsche Bank, it trimmed its S&P/ASX 200 year-end target to 5750 from 6000 previously, but forecasts a rise to 6250 at the end of 2011. The broker said that with expected earnings growth remaining at 25%, S&P/ASX 200's one-year forward market PE has fallen to 11x. Deutsche argues that investors appear fearful of no earnings growth in FY10, as that outcome would be needed for the market PE to reach the 15-year average of 15x. The broker continued, saying some recovery in the market PE, either because current concerns prove overdone or prove to be less relevant to Australia, could contribute to a significant improvement in the market. As an indication, if current earnings estimates broadly persist and the PE ratio recovers to around 14x, Deutsche believes the S&P/ASX 200 could rise to over 5500.

Ben Potter Research Analyst

IG Markets - CFD trading