Just as they repeatedly did in 2015 and early 2016, falling oil prices have resumed spooking global financial markets.
Markets around the world, led by China quivered late Friday on as global oil prices moved into bear territory (a fall of 20% or more from their most recent peak) and Wall Street’s three major stock indexes then slumped.
US West Texas Intermediate crude futures lost 0.8% to settle at $US60.19 a barrel and then fell in late trading to end at $US59.87 and under the $US60 a barrel for the first time in months. Brent crude futures fell half a percent to settle at $US70.26 a barrel.
In China, the CSI 300 index of major Shanghai and Shenzhen-listed companies fell 1.4% on Friday led lower by a 2.6% fall for financials as every segment except telecoms dropped. That was despite moderate inflation data for October.
Hong Kong’s Hang Seng fell 2.4%. The sell-off saw the Australian market turn weak for most of the day and it finished in the red after being down more than 30 points.
It seems that after a week of recovery from the big October sell-off, financial markets have quickly lost their poise.
Commodities were dragged lower – with gold leading the way – US bond yields fell as safe-haven buying again emerged, the Aussie dollar retreated to around 72.25 US cents and the greenback softened a touch, then rose.
Oil prices fell nearly 1% on Friday, and have now seen the longest stretch of daily declines since 1984, on rising global supply and evidence of a slowing world economy.
Donald Trump’s campaign to get his mates in OPEC and outside (Saudi Arabia and Russia) to boost production has seen global markets flooded with unwanted oil, helped by a surge in US output by around 400,000 barrels a day in recent weeks.
That’s why a meeting on Sunday in Abu Dhabi between OPEC and non-member producers such as Russia, has assumed sudden importance and could see talk of the production cap being restored to its starting level of 1.8 million barrels a day.
The threat of higher prices from the start of US sanctions on Iran has faded, especially with six-month exemption to eight buyers (Turkey, India, South Korea, Japan, and perhaps China).
But the risks to sharemarkets from surprisingly weaker oil prices is not going to ease any time soon.
That’s why the S&P 500 eased 0.9% after being down well over 1% on Friday. Energy shares lost nearly half a percent after losses the day before. Communication services retreated 1.5% and tech stocks shed 1.7%.
The Dow Jones lost 0.8%, and the tech-heavy Nasdaq Composite lost nearly 1.7%.
But markets were still higher over the week because of Wednesday’s post-poll bounce (the poll is starting to look even worse for the Republicans)
For the week, the S&P 500 rose 2.1% percent, while the Dow climbed by just on 3%. The Nasdaq gained less than 1% and those giant tech stocks are still under pressure.
The Financial Times pointed out that there were some big falls on Friday for various reasons:
“In corporate news, shares of General Electric fell 5.6 percent after an analyst at JPMorgan lowered his price target to $6 a share and raised concerns about the industrial conglomerate’s debt load. GE responded to the report with a statement saying it remains a “fundamentally strong company with a sound liquidity position.”
“Activision Blizzard’s stock lost 12.4 percent of its value after the video game maker reported a decline in monthly active users for the third straight quarter.
“California utilities PG&E and Edison International posted declines of 16.5 percent and 12.1 percent, respectively, as wildfires ravaged parts of the state,” The FT reported.
All this on top of the worries about falling oil prices and the growing political uncertainty in the US in the wake of the midterm elections.
Eurozone shares edged up 0.4%, Japanese shares were flat and Australian shares rose 1.2%. Chinese shares fell 3.7% on concerns about the Chinese economy.
Chinese inflation data was a touch weaker, but imports and export were stronger than expected. Car sales fell for a 4th month in a low in October
