By Rudi Filapek-Vandyck

US equities closed lower on Monday (US time), with the DJIA losing 52.35 points to close at 13,254.29. The S&P500 shed 0.61% to close at 1429.08, while the Nasdaq closed a full 1% lower at 3104.02. Defensive stocks were out of fashion, including this year's outperforming technology stocks, but Telecommunications, Materials and Energy all attracted more buyers than sellers in what might prove an early signal of market rotation in motion.

Technology stocks were out of fashion last night ahead of Apple's highly anticipated iPhone 5 launch on Wednesday and -let's not forget- after industry bellwether Intel issued a profit warning on Friday. Once upon a time... a profit warning by Intel would have been enough to spook investors and trigger waves of selling orders, but not this time around as policy anticipation is the word du jour.

This, however, hasn't stopped the less bullish experts from looking forward to the upcoming Q3 reporting season in the US. The way things are shaping up -post profit warnings from major bellwethers FedEx and Intel- is that earnings per share for the market overall might only grow on average by 1-2%. If this materialises, it would mark the slowest pace on record since Q2 of 2009 and also confirm a downtrend has been in place since Q4 2011.

Share of Intel lost nearly 4% after several brokers cut price targets, while Apple shares lost 2% overnight after an initial rally to a new high for the year.

As far as economic data were concerned, it emerged US consumer credit contracted for the first time in nearly a year, down by US$3.28bn in July - well below expectations for an increase of US$9.1bn. Revolving credit (which includes credit cards) fell for the second consecutive month, down by US$4.82bn. Non revolving credit rose by US$1.55bn.

Yesterday also confirmed a rather disturbing trend in place since June this year and that is that US equities have formed a new habit of closing lower on Monday sessions. Last night's session marked the 13th decline out of the past fourteen. What does this mean? Anyone have a clue?

News also emerged that India's second largest producer of iron ore has suddenly halted production. According to media reports, the decision was made "after an expert panel formed by the central government found serious illegalities and irregularities in mining operations." The direct connection between a stabilisation in the Chinese spot price and the drop in supply from nearby India is easily drawn. China spot iron ore jumped by 6.7% to US$95 per tonne, off the low of US$86.70 from last week.

Now that we have mentioned China... import and export data released on Monday (Asia time) proved again a disappointing and worrisome exercise. Economists continue downgrading their forecasts and expectations, not only for the remainder of 2012, but also including next year. In the meantime, the downward trend in Chinese growth is likely to continue this quarter, with economists anticipating a GDP outcome that will fall short of the already disappointing 7.6% growth reported for the second quarter. Always darkest before dawn? Certainly there are quite a few commodities bulls around the globe who believe this is the scenario unfolding right now.

If correct, this makes resources plays in the share market the next place to be. If not today, then certainly tomorrow. Surely I am not the only one who has noticed that share prices for the likes of BHP Billiton ((BHP)) and Santos ((STO)) and Newcrest ((NCM)) are now off some 10% from share prices seen only a few weeks ago?

We have been here before, and while there is a widely carried market observation that the more solid, dividend paying industrials are now trading at a huge premium vis-a-vis the more fragile, growth leveraged cyclicals, resources and energy stocks, we haven't seen a genuine attempt by the latter stocks to narrow the valuation gap... yet. (see also below)

Maybe it's all just a case of let's get past Wednesday and Thursday first. What? You just returned from Mars and don't know what I am talking about?

Let's not hold our breath, as Germany's Constitutional Court has already signalled it is examining whether to postpone its long-awaited verdict on the eurozone's permanent rescue fund and the EU fiscal pact after a new legal challenge by a leading eurosceptic politician. Whoever wrote this script surely knows how to make a sad and non-exciting story last and last and last...

On Thursday, the FOMC will announce its decision and after yet another disappointing labour market update on Friday, opinion remains divided on what exactly will be put in action. Expectations are Bernanke & Co will extend their zero rate policy promise (ZIRP) into 2015. But what will be among the extras? Will there be a direct link between ZIRP and unemployment? (As in: we want at least 7% or else no tightening?) And will there be a genuine asset purchasing program, i.e. QE3? All shall be revealed...

Meanwhile, equity markets in Europe also retreated on Monday, but it has to be noted that investors were selling defensive stocks, with resources having a positive session as was the case yesterday in Australia. The early stages of that long anticipated Big Rotation?

In the FX arena, the euro fell from highs near US$1.2800 to US$1.2755 and closed US trade near its lows. The Aussie dollar eased from highs near US103.65c to lows near US103.30c and ended US trade near US103.35c. And the Japanese yen traded in a tight range from 78.20 yen per US dollar to JPY78.30 and ended US trade near JPY78.25.

Brent crude rose by US56c to US$114.81 a barrel. US Nymex crude rose by US12c to US$96.54 a barrel. Base metal prices posted solid gains between 1.1-3.1% on the London Metals Exchange. Tin rose the most (up 3.1%) followed by zinc (up 2.2%). The copper price rose to its highest level in four months. The gold price ended lower on Monday, giving back some of the sharp gains from last week as investors took profits. The December Comex gold futures price fell by US$8.70 an ounce to US$1,731.80 an ounce.

Ahead: In Australia, lending finance data and the NAB business confidence survey are released. In the US, trade data is released.

Some newsbytes that have absolutely no use today, but they might a little further down the track. Economists at JP Morgan have calculated a successful new product launch by Apple could potentially add up to 0.5% to Q4 GDP growth in the world's largest economy. And France's richest citizen, Bernard Arnault (of LVMH fame), has announced he will seek to swap his passport for a Belgian one since the French government is planning to fill budget holes by slapping a 75% tax on the super rich.

The SPI futures are indicating a slightly lower opening today, but all shall depend on what share prices for index heavyweights BHP Billiton and Rio Tinto ((RIO)) will do vis-a-vis those other heavyweights, the Four Major Banks.

Greg Peel is on assignment in China this week.

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