Global shares had a mostly positive week helped by mostly good economic data and as the Chinese easing and expectations for more easing in Europe continued to impact.
But it was positive up until Friday, especially in Australia, when reality mugged the upbeat sentiment with the fallout from the OPEC oil decision.
OPEC’s failure to reach agreement saw oil prices plunge below $US70 a barrel their lowest since the end of the GFC in mid 2010.
There’s every chance prices will edge lower in the coming week as investors sell and continue the usual overreaction when bad news hits sentiment.
Energy stocks of all types got hammered on Friday around the world as global oil prices plunged in response to a decision by OPEC not to cut production levels.
That’s why volatility in sharemarkets will rise for the next few weeks as investors sort out the winners and losers.
A lot of losers were spotted by worried investors locally on Friday, after similar selection in Europe.
That continued Friday night as the prices of conventional oil companies, renewable energy companies, suppliers, shale oil drillers in the US, and even banks, fell sharply.
It’s why our market is staring at an early slump this morning of more than 40 points, to go with Friday’s 88 point, or 1.7%, plunge.
The market will get a tiny amount of support from another rise in iron ore prices – up 1.9% on Friday night to $US71.32 a tonne. But that won’t hold off the selling pressures from the oil price slide.
It was that nasty fall which slashed the week’s gains to just 0.2%, which was hardly convincing – a point many market commentators at the weekend were slow to point out.
The market reactions by the end of the week tell us something about where the winners and losers might lay.
US shares rose 0.7%, as investors sold off oil related stocks of all sizes and types – but airlines and consumer staples related companies surged because they are seen as the direct beneficiaries of lower energy costs.
But the question now for the US is what the slide in prices does to the outlook and sustainability of the US shale oil boom.
If prices remain around these levels for the next six months, there will be collapses, consolidations and production will take a hit.
The S&P 500 ended the short trading day on Friday, down 5.27 points, or 0.3%, at 2,067.56 after touching an intraday record in early action.
The Dow added less than half a point to end at 17,828.24 for yet another record close. The Nasdaq rose 4.3 points to end at 4,791.63.
For the week, the Dow rose 0.1, the S&P rose 0.2% and the Nasdaq rose 1.7% (digital and tech stocks are not energy-impacted).
For November, the Dow rose 2.5%, the S&P added 2.5% and the Nasdaq 3.5%.
European shares gained 1.6% because as stagnant as it is (and approaching deflation), the eurozone as a whole is an energy importer and is seen benefiting, especially hard pressed consumers.
Japanese shares rose 0.6% as figures out on Friday confirmed that the attempt to reflate the economy out of its deflationary rut was running out of steam.
The weak data on falling inflation, consumer demand and spending underlined the reason why the Bank of Japan expanded its easing spending at the end of October, and why the Abe government called a snap election for next Sunday week.
The Japanese economy is in danger of stalling, and all that money spent trying to boost activity could be lost.
Chinese shares surged 7.9% after the interest rate cut 10 days ago, and signs the government is taking the slowing level of activity more seriously than a month earlier.
The release of the monthly surveys of manufacturing and services this week will hold attention on the government and the central bank’s attempts to avoid a slump.
And Australian shares rose just 0.2% as falls in energy stocks limited gains on Friday. That rise was generated much earlier in the week.
The plunging oil price also pushed bond yields sharply lower as it depresses inflation, bringing deflation closer to the eurozone and its return in Japan.
Most commodity prices fell, with the iron ore price falling below $70 a tonne and this along with another RBA comment that the $A is too high saw the $A fall further.
It ended just above 85 USc on Saturday morning at 85.06.
Falling gold, silver and copper prices will also add to the pressure on resource stocks in Australia today.
The local market’s big sell off on Friday saw the November performance worsen considerably to a drop of just over 2.5% for both the ASX and the All Ordinaries.
Without that 1.7% slide on Friday, it would have been less than 1%.
The ASX200 index crashed 1.7% to 5313.00, while the All Ordinaries Index fell 1.6% to 5298.10.
The damage among energy stocks was extensive.
Shares in Santos plunged 15.4% over the week (mostly on Friday) to $10.10 while Origin dropped 7.6% to $12.25, Horizon shares fell 14.9% to 20¢, Senex shares dived 13% to 34¢, Woodside lost 8% to $35.75, and Oil Search shares dropped 7% to $7.97.
Qantas shares benefited from the oil price drop, adding 8.5% to $1.92.
Woolworths ended down 1.52% for the week at $31.12, Wesfarmers shares lost 2 over the week to $41.42.
The big four banks all rose over the week, helping steady sentiment.
The Commonwealth Bank was up 0.8% at $80.72, the ANZ 0.3% to $31.92, Westpac 0.9% to $32.55, and the National Australia Bank shares rose 1% to $32.60.
