Markets are becoming more febrile as the oil price plunge rattles confidence around the world – and Russia is emerging as a major concern.
Wall Street has ended this morning where it started the trading session – in the red and looking to go lower as the continuing weakness in the price of oil, the start of the two day Federal reserve meeting and worries about the health of the Russian economy rattled confidence.
Our dollar is trading just above 82 US cents – the US dollar has risen because of the worsening situation in Russia (and in markets in the oil producing Gulf states). Wall Street opened in the red, reversed and made solid gains, only to drift lower in the last couple of hours of trading before a sharp lurch downwards at the end.
Futures trading on hour market overnight and this morning reflected those leads – the share price futures index ended up with small losses around 8 am this morning after rising as high as a 43 point gain.
The Dow lost 0.6%, the Nasdaq 1.2% (it was the weakest of the three US markers all session) and the S&P 500 fell 0.8%.
US oil prices and Brent crude fell sharply in late Asian and European trading, to be down around 4%, but reversed. Brent ended at $US59.56, down 2%. US West Texas style crude fell, then rose and was at $US56 a barrel just after 8 am.
But it’s Russia which is grabbing attention as the rouble continued to plunge, despite the late night move early Tuesday morning to lift official interest rates to an extraordinary 17% to try and halt the currency’s slide.
The Financial Times reported that at one stage overnight the rouble crashed to 80 against the US dollar before recovering to 70. It has fallen more than 50% since the start of the year, reviving memories of the 1998 crash when Russia defaulted on its domestic debt.
But although its public finances and reserves are in a much healthier state than they were 16 years ago, markets are just as fearful, if not more, as the slump in oil prices places huge strains on the economy, aided by the deep financial and other sanctions imposed by the West over the Russian military adventures in Crimea and Ukraine.
The rouble fell another 11% overnight Tuesday as Russians sought to convert their currency into US dollars or Euros and move the money out of Russia. A concerted flight to safe haven investments continued with German 10 year bond yields hitting an all time low of 0.69% (yes, 0.69%). Yields on US 10 year bonds, the safest of all havens, dipped to 2.05%, despite more evidence the economy is doing well.
Yields on Australian 10 year bonds fell to 2.85% this morning, only 0.35% above the Reserve Bank’s cash rate of 2/50% and further pressure on the central bank to cut rates early in 2015.
And in the Persian Gulf, more pain, not only from falling oil prices, but plunging markets.
Saudi Arabia’s Tadawul market slumped 7.5% yesterday, the biggest drop of any stock market in the world today, closely followed by Abu Dhabi and Dubai’s equity markets, which fell 7.2% and 5.6% respectively. Both of the United Arab Emirates’ two main exchanges have now lost all of their gains of 2014, after being two of the best in the world earlier in the year.
Qatar’s main index fell 3.5% today, Kuwait’s 2.1% and the Omani exchange slumped 2.9%, according to data from the Financial Times and Bloomberg.
