Monday, 15 December 2014

Markets fall as oil hits five-year low

Global markets suffered steep falls last week.

Stocks fell sharply, with the MSCI All-Country World Index falling 3.8 percent last week. The Standard & Poor’s 500 Index fell 3.5 percent. The STOXX Europe 600 Index plunged 5.8 percent, its worst week in three years. The MSCI All-Country Asia Pacific Index fell 2.0 percent.

Sentiment in stock markets were hurt by continuing declines in oil prices last week. West Texas Intermediate oil fell 12 percent, hitting its lowest level since May 2009 on Friday, while Brent fell 11 percent, hitting its lowest level since July 2009.

Oil touched its lows for the week after the International Energy Agency reduced its 2015 demand forecast by 230,000 barrels, the fourth cut in its forecast in five months.

The falls in stocks and oil hit speculative grade credit. The iShares iBoxx High Yield Corporate Bond exchange-traded fund fell 3.4 percent last week, the biggest decline since 2012.

Government bonds in financially-troubled economies also fell. Greece’s 10-year yield rose 192 basis points, the biggest weekly increase since May 2012.

Conversely, yields of government bonds considered safe havens fell. The yield on the United States 10-year Treasury note fell 23 basis points last week, the biggest decline since June 2012. The yield on German 10-year bunds fell 16 basis points.

Economic data last week showed strong growth in the US but weakness elsewhere.

In the US, retail sales rose 0.7 percent in November and the Thomson Reuters/University of Michigan's preliminary reading on the consumer sentiment index for December showed a rise to 93.8, the highest reading since January 2007, from 88.8 in November.

However, in the euro area, a report last week showed that industrial production rose just 0.1 percent in October.

In China, a report last week showed that industrial production rose 7.2 percent from a year ago in November, slowing from the 7.7 percent year-on-year increase in October. Trade shrank in November as exports rose 4.7 percent from a year earlier, down from an 11.6 percent rise in October, while imports fell 6.7 percent last month after having risen 4.6 percent the previous month.

Also last week, Japan revised down its third quarter GDP data to show a contraction of 0.5 percent, worse than the preliminary estimate of a 0.4 percent contraction. Another report showed that Japanese machinery orders fell 6.4 percent in October.

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