US markets have fallen off a cliff as yesterday's session has continued with the theme of panic and fear that has dominated the start to the year. The Dow Jones was down over 500 points with the S&P 500 down over 60 points and the NASDAQ down almost 150, all lower by over 3.5%. The fall of over 20% from the highs for the FTSE100 means that it has followed most of the world’s major stock markets into bear markets territory, after being in a strong bull market for almost 8 years. Oil prices are of course behind the recent moves, with the WTI oil breaking below $27 a barrel yesterday. We keep trying to attribute the oil price fall to something but the oversupplied market is simply that. After the Iranian sanctions were lifted, this meant that another 500,000 barrels per day is being sucked into the already over supplied markets.
It’s not all red in the markets, as global fear and panic means money is pumped into the old fashioned safe havens. Gold has rallied back towards the $1,111 level, with the yen also showing strengthening against all of its major counterparts. Oil will not stay this low forever though and any move higher however brief will be met with exaggerated moves higher across the board.
China is the other aspect that is dragging on market,s as the world’s second largest oil consumer suffers from a huge slowdown. The China of old that was responsible for propping up the global economy is now gone, and a new entity that can barely support itself is in its place. The IMF have warned of a global slowdown, but what they also said was that the markets are overreacting to the commodity rout and Chinese slowdown. Unfortunately that is true, but that does not slow down the fall, or put confidence back in the market, the fear is here to stay, at least for now, or until a relief rally gives mining and energy stocks a break and allows central banks to relax about their policy.