While you were sleeping: Oil sinks to new lows

Tuesday 12th January 2016

Wall Street traded lower with the price of oil and intensifying concern about China, while investors awaited the start of the US earnings season.

Oil sank. US West Texas Intermediate last traded at US$31.10 per barrel after sliding below US$31 earlier in the day to the lowest level since December 2003. Brent crude futures recently traded at US$31.40 a barrel, after earlier touching the lowest level since April 2004.

“Oil in the $20s is possible,” Morgan Stanley analyst Adam Longson wrote in a report dated January 11.

After opening higher, Wall Street resumed last week’s downward trend. At 13.22pm trading in New York, the Dow Jones Industrial Average shed 0.3 percent, while the Nasdaq Composite Index declined 0.8 percent. In 13.06pm trading, the Standard & Poor’s 500 Index fell 0.3 percent.

“January has certainly been worse than expected so far,” Stephen Carl, principal and head equity trader at Williams Capital Group, told Bloomberg. “You have weak oil and the China overhang, plus some skepticism around how strong economic numbers will continue to be. We’re trying to find a trading pattern with no notable economic numbers this morning.”

The Dow moved lower as slides in shares of Caterpillar and those of DuPont, last trading 3 percent and 2.9 percent weaker respectively, outweighed gains in shares of Cisco and those of Apple, last each up 1.5 percent.

While there have been some concerns about the latest US economic data such as weak manufacturing, a report last Friday showed the nation’s jobs market was stronger than expected in December.

Indeed, Federal Reserve Bank of Atlanta President Dennis Lockhart said he expects “further rate increases will be justified by economic performance in 2016.”

“The downside risks relate mostly to the influence of the rest of the world on our economy,” Lockhart said in a speech at the Rotary Club of Atlanta.

“Last week we saw a global selloff in stock markets apparently triggered by data from China that fell short of expectations,” Lockhart noted. “The bearish environment was compounded by tensions between Iran and Saudi Arabia, the bomb test claimed by North Korea, and lower oil prices.”

“When such volatility develops, I think it's helpful to look at the real economy of the United States (as opposed to the financial economy) and ask if something is fundamentally wrong,” according to Lockhart. “Are there serious imbalances that make the broad economy vulnerable to foreign shocks? I don't see that kind of connection in current circumstances.”

Yet some are increasingly concerned about the outlook for China, which is dealing with a plunging stock market as the country is struggling to stoke its economic engine.

“Beneath all of the financial turbulence there lurks, in my view, a credit crisis,” UBS economic adviser George Magnus told Bloomberg. “I fear the worst now.”

Meanwhile, a fresh round of US earnings will arrive as Alcoa is set to report its latest quarterly earnings after the market close. Its shares fell 0.9 percent in afternoon trading.

In Europe, the Stoxx 600 Index ended the session with a 0.3 percent decline from the previous close. Germany’s DAX Index fell 0.3 percent, France’s CAC 40 Index slid 0.5 percent, while the UK’s FTSE 100 Index retreated 0.7 percent.

BusinessDesk.co.nz

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