Europe
Few stocks were spared yesterday as European equity markets plunged sharply with the FTSE100 hitting levels last seen in November 2012, and tipping into bear market territory.
Once again it’s been lower oil prices that prompted yesterday’s sell-off, driven lower by Tuesday’s IEA announcement that the oil market “could drown in oversupply” throughout 2016.
Combined with yet another downgrade to global growth from the IMF Tuesday, investors are having to digest a pretty toxic cocktail of factors that are weighing heavily on sentiment.
As a result US oil prices slipped to new 13 year lows, below $28 a barrel, while Brent prices came pretty close to matching them.
Increasing concerns that falling oil prices could contribute to significant numbers of bankruptcies in the US oil and gas sector aren’t helping sentiment amidst concerns of significant loan losses for US banks.
The biggest losers have once again been in the basic resource sector with mining stocks resuming their declines, leading the FTSE 350 Mining Index to its lowest levels in over ten years, led by Australian miner BHP Billiton (L:BLT) whose share price hit its lowest levels since 2005 after the company announced it was cutting its iron ore production guidance in the wake of the Brazilian Samarco tragedy.
Bank shares have also come under pressure with Barclays (L:BARC), Standard Chartered (L:STAN) and HSBC (L:HSBA) all down heavily, along with insurers after Zurich Insurance (VX:ZURN) announced that the cost of the UK floods was likely to be in the region of £200m, in Q4, putting downward pressure on Legal & General (L:LGEN) and Aviva's (L:AV) share price.
Royal Dutch Shell (L:RDSa) is also feeling the chill, hitting its lowest levels in five years after reporting that it expected to see a 40% slide in Q4 profits to between $1.6bn and $1.9bn. What is more concerning is the recent declines in Shell’s share price has been accompanied by a rise in volumes which suggests that investors are starting to lose confidence, at a time when questions marks are increasingly being asked about the size of the price tag of the deal with BG Group (L:BG)
Pubs usually tend to see a bit of a drop off in sales in January as consumers cut back after their pre-Xmas binges, so the last thing you want to see is a profits warning. Unfortunately that’s precisely what we got from J D Wetherspoon (L:JDW) as the company warned that profit for the year would be at the lower end of expectations. As a result the share price has dropped faster than a beer barrel through the open door of a beer cellar, down over 9% and to two and a half year lows.
It’s not been all doom and gloom though with high street retailer WH Smith (L:SMWH) surging after reporting a 5% rise in sales at its stores at transport hubs around the country. Also doing well gold miner Randgold Resources (L:RRS) has moved higher after gold prices popped back above $1,100 an ounce, but that is about as far as the silver lining goes.
US
US markets took their cues from European markets yesterday and plunged on the open, hitting one year lows, after US economic data showed significant weakness in both housing starts and building permits in December, without the well-worn excuse that the weather was too cold.
Housing starts fell 2.5% and building permits slumped 3.9%, while monthly CPI declined 0.1%, once again raising the question as to whether the Federal Reserve might have been too hasty in pushing up rates last month.
Core CPI did rise 2.1% on an annualised basis with medical costs being a large part of that.
On the companies front, Netflix (O:NFLX) shares slid sharply on the open despite reporting earnings above expectations of $0.07c a share after the bell Tuesday night. It would appear that despite a sharp rise in the growth in international subscribers investors have taken the opportunity to take some money off the table on a stock that remains one of the most overvalued on the S&P500.
IBM (N:IBM) also beat expectations last night but it wasn’t enough to stop the share price hitting five year lows after the company guided lower on its profit forecasts.
FX
The Japanese yen was the best performer yesterday on increasing risk aversion as well as the belief that the Bank of Japan is unlikely to embark on further easing measures when it meets up at next week’s policy meeting.
The pound has managed to gain some traction after better than expected unemployment data, which saw the rate drop to its lowest level since late 2005, to 5.1% well before the financial crisis. Wage growth continues to remain on the soft side, coming in at 2% including bonuses. The pound has finished the day lower against the US dollar in fifteen out of the last seventeen trading days.
The Canadian dollar has managed to rebound as it looks to arrest a decline of thirteen consecutive down days, helped by the decision of the Bank of Canada to hold rates at 0.5%, while other commodity currencies have come under pressure with the Norwegian krone and Australian dollar amongst the worst performers.
The Russian rouble has also continued to slide to record lows; it’s now down 32% against the US dollar since mid-October.
Commodities
Crude oil prices have continued to come under pressure, undermined by yesterday’s IEA announcement that the oil market “could drown in oversupply” throughout 2016. The continued surplus as well as a strong US dollar is likely to remain as a drag on any rebound in the short term, with the real prospect that we could well see further losses towards $20 a barrel over the course of the next few days.
Gold prices have managed to edge back above the $1,100 level as continued weakness in equity markets spurs some haven buying.
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