While you were sleeping: Oil spurs global stock rout

Thursday 21st January 2016

Wall Street and stocks elsewhere plunged with oil prices, spurring investors to seek the perceived safety of US Treasuries, amid concern about the global crude glut and the worldwide economy.

US crude for February delivery, which expires at the end of the day, sank as low as US$26.85.

“It is the third year in a row we have more supply than demand,” Fatih Birol, executive director of the International Energy Agency, told Bloomberg. “Prices will be still under pressure. I don’t see any reason why we have a surprise increase in the price in 2016.”

Wall Street dropped. In 12.33pm trading in New York, the Dow Jones Industrial Average sank 3.2 percent, while the Nasdaq Composite Index plunged 3.4 percent. In 12.18pm trading, the Standard & Poor’s 500 Index sank 3.1 percent.

“What the market is focused on is Chinese hard landing fear, oil prices and the strength in the dollar,” Phil Orlando, chief equity-market strategist at Federated Investors in New York, told Bloomberg. “Domestic economic fundamentals don’t matter, and that’s the point of this correction. That’s when we start talking about the need to retest the summer lows and holding at that level to take us to long-term support.”

US Treasuries rose, sending 10-year yields nine basis points lower to 1.97 percent.

"The damage being done in energy is spreading," Brian Fenske, head of sales trading at ITG in New York, told Reuters. "Just getting up every morning and seeing the S&P futures down 1-2 percent has a near-term psychological impact and puts some investors into risk-off mode."

Slides in shares of Chevron and those of IBM, last down 7 percent and 5.4 percent respectively, led the Dow lower. All 30 stocks in the Dow traded lower around midday.

The slump in energy costs was reflected in the latest US data. A Labor Department report showed US consumer prices unexpectedly dropped in December, with the consumer price index falling 0.1 percent. Stripping out food and energy costs, the so-called core index rose a lower-than-expected 0.1 percent.

Even so, the index rose 0.7 percent in the 12 months through December, the largest advance in a year.

US Federal Reserve policy makers might think twice about raising interest rates. Their next two-day meeting begins Tuesday.

“The broad-based nature of the decline in inflation will hardly be encouraging news at the Fed, and if anything it is likely to temper their confidence in the outlook for inflation,” Millan Mulraine, deputy chief economist at TD Securities in New York, told Reuters.

Shares of IBM tumbled after the company offered a disappointing estimate for its 2016 earnings forecast.

Shares of Netflix plummeted, last 7.1 percent lower, after the company reported an increase of US subscribers that fell short of expectations.

“It’s just the next 50 million are a little harder than the first 50 million in terms of growth,” Netflix Chief Financial Officer David Wells said on a conference call, Bloomberg reported.

In Europe, the Stoxx 600 Index finished the day with a 3.2 percent slump from the previous close. Germany’s DAX Index dropped 2.8 percent, while the UK’s FTSE 100 Index tanked 3.5 percent, as did France’s CAC 40 Index.

BusinessDesk.co.nz

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