UK & Europe
On Friday it was all pain for stocks and oil and gains in gold and government bonds.
Oil prices plunged as much as 5% back below $30 per barrel, taking emerging market and developed market equities as well as the rest of the commodities space down with them. Investors are shifting funds into areas of perceived safety including gold and government bonds in hopes of protecting themselves.
The Shanghai Composite has already fallen back into bear market territory. The FTSE 100 has run into its August lows while the German DAX and the Dow Jones are at their worst levels since September.
Symbolically it was Randgold (L:RRS) that topped the FTSE 100 which moved higher in line with gold prices as investors sought out the perceived safety of precious metals. The rest of the resource sector was at the other end of the spectrum which fell alongside oil and copper prices.
The FTSE 100 fell below 5800 led down by resource companies after BHP Billiton (L:BLT) wrote down $7.2bn in assets sending the mining sector plummeting with shares of Anglo American (L:AAL) getting walloped by over 10%.
US
US markets nosedived on the open with the Dow Jones falling 250 points and the NASDAQ ratcheting up a 10% decline in January alone after retail sales and Empire manufacturing data missed expectations. The weak domestic data is adding concern over the US economy to the gloomier picture for global growth implied by lower oil prices.
Retailers appear to be reacting to the slowdown in demand; Wal-Mart (N:WMT) announced it was closing 269 stores joining other department stores who battened down the hatches last year.
FX
The US dollar was weak after disappointing retail sales and Empire Fed manufacturing data. US retail sales growth in 2015 was the worst since the wake of the financial crisis in 2009. The Fed’s Bill Dudley sounded relatively positive in comments on Friday, saying the outlook for the US economy is unchanged but did admit to a weak fourth quarter. Mr Dudley’s expectations are for rates to rise gradually this year and said he was not concerned about the difference between the Fed’s and the market’s outlook.
Commodity-dependent nations including New Zealand, Australia and Canada saw their currencies continue to decline in line with commodities.
The biggest exception was the British pound, which dropped again and fell to fresh 5 ½ year lows against the dollar, despite broader weakness in the dollar. The dovish minutes from the Bank of England this week have increased the number of calls for no rate hikes at all this year in the UK.
Commodities
Oil prices plummeted in early European trading by over 5% but unlike on previous occasions this week after a big drop, there was very little in the way of recovery. The renewed downdraft wipes out the short-covering bounce from beneath $30 p/b seen on Thursday. Every time oil falls to another big figure there’s a little bit less of a reason to sell but it’s hard to see many reasons to buy.
Friday did bring the makings of a big reason to feel more bullish on oil after Russian pipeline operator Transneft estimated Russian oil shipments would fall by over 6% in 2016. That would represent half of the daily supply glut and could prompt a cut in production from OPEC to see the supply-demand imbalance that has played a big role in the oil price decline completely redressed.
After falling for most of this week, gold rallied as much as $25 per oz right off the July 2015 low mentioned in Tuesday’s report. Gold’s allure may not last given the deflationary tendencies of the US economy but in the short term it is benefitting from safe-haven flows and dollar weakness.
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