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The local stock market faces a severe test of its underlying strength today after US investors were panicked by worse than expected unemployment figures and a dramatic oil price spike.
The double blow caused already jittery US markets to fall sharply.
Wall Street's Dow Jones index and S&P 500 index both shed 3.1 per cent by the close on Friday (Saturday NZ time). For the Dow it was the biggest fall in 15 months - since the start of the sub-prime crisis in February 2007.
With US markets closed for the weekend all eyes will now go on Asian markets - which typically react badly to Friday falls in the US.
So far this year the NZX has borne up better than many of its peers.
But this time around New Zealand stocks are also under pressure from a rapidly slowing economy.
The NZX-50 will open today at 3548 points, well above its 12-month low of 3404, which was hit in March shortly after the collapse of US investment bank Bear Stearns.
Confidence had been growing that the worst of the credit crunch was over, but the spiralling oil price now looms as an equally serious threat to financial markets.
Wall Street traders were stunned on Friday by the biggest-ever one-day rise in crude oil futures, adding to worries about a weak economy.
New York's main oil futures contract, light sweet crude for July delivery, leapt US$10.75 ($14) a barrel to close at a record US$138.54 as fears of a new Middle East conflict were fanned by comments from a top Israeli official about Iran.
The situation was compounded by a report from analysts at investment bank Morgan Stanley which tipped oil to hit US$150. Oil investors' frantic buying of crude futures made it clear that the market could make the Morgan Stanley prediction a reality.
Also hitting sentiment was a weak report on the labour market, seen as one of the best indicators of economic momentum. The jobless rate jumped half a point to 5.5 per cent as 49,000 jobs were lost.
"The US jobs report had recessionary paw prints all over it," said economist Sal Guatieri at BMO Capital Markets.
While the NZX and other markets around Asia may face some negative sentiment today, the real test will be in how Wall Street responds when it opens on Tuesday morning New Zealand time.
There are some hopes that Friday's spike may have been an aberration - but even the optimists are being cautious. "I think it is,"said Goldman Sachs chief economist Jim O'Neill when asked if it was an overreaction. "Oil is the one thing I'm really not sure about," he said at the St Petersburg International Economic Forum at the weekend.
Ethan Harris, Lehman Brothers' chief US economist, said the employment report had helped drive oil prices higher. Traders were worried that the spike in unemployment would leave the US Federal Reserve unwilling to raise interest rates. The notion of a Fed with few options combined with comments from the European Central Bank to cause a fall in the US dollar.
"The weaker dollar is pushing up oil prices because oil is denominated in dollars and oil sellers want to be compensated for the weaker dollar," Harris said, adding that he thought the market's moves had been overdone.
"While I'm sceptical of the whole thing in terms of whether it makes sense logically, this is the way the market behaves. It's like a Pavlovian response. If the Fed looks soft, oil prices go up," he said.
On Saturday energy ministers from the US and the four Asian economic powers - Japan, China, South Korea and India - expressed "serious concerns" about the level of oil prices after their meeting in Aomori, Japan. US Energy Secretary Sam Bodman spoke of "shock", while Japan's energy minister Akira Amari said rising oil prices were "a major risk factor" for the world economy.
