UK & Europe
Shares in the UK fell to a three week low on Thursday with the FTSE 100 falling below 6130 to its lowest level since November 16. European stocks slid back below Friday’s close with the German DAX dropping back below 10,680.
The bottom is falling out of the Oil market and sparking widespread panic selling. Brent crude gave up an early attempt at a recovery and dropped below $40 per barrel for the first time since 2009.
Even though most industries stand to benefit from lower oil prices, when the price collapses, it sends a signal of lower global demand and that is weighing on sentiment in equity markets. The complete failure of OPEC as a force to influence global oil supply has come just at a time when the dollar has been at its strongest in months ahead of a widely anticipated rate hike.
Thanks to under-delivery from the ECB and OPEC, December has gotten off to one of the worst starts for equities in years.What promised to be a Santa rally for stocks is turning into a sledge-crash.
As the most commodity stock–laden index in Europe, the FTSE 100 actually outperformed the continent. The 2% drop in the German DAX which is more orientated to manufacturing than commodities suggests there’s more to this equity drop than just the oil price. The ECB’s under-delivery of stimulus and the impending Fed rate hike are major factors in the current stock market volatility.
Shares of Anglo American (L:AAL) slumped double digits after the mining giant announced it would scrap its dividend as part of a wider restructuring effort. Anglo’s divi cut has temporarily muddied the daily correlation between miners and underlying commodities like copper which got a lift after Chinese import data showed a 10% rise over the year.
Anglo American has come out in front and set the president for the other miners to cut their dividends. BHP Billiton (L:BLT) as second biggest faller on the FTSE today seems like the next likely candidate for a divi cut.
Sainsbury's (L:SBRY) was a stand-out performer after a broker upgraded the supermarket to buy citing its low earnings multiple and best operating profits as an opportunity.
US
US stocks opened weaker on Friday with the Dow down triple digits burdened by the slump in energy prices. Sentiment is clearly temperamental going into the Fed meeting next week and markets could be prone to higher than usual volatility as a result.
FX
FX markets were fragmented on Tuesday with the dollar gaining against commodity currencies and the British pound but losing out to the euro and safe-havens like the Japanese yen and Swiss franc.
The British pound was lower as UK manufacturing contracted more than expected over the month but higher revisions to previous months helped industrial production rise more than expected year-over-year. EUR/GBP surged through Thursday’speak and looks set to retain 0.73.
The euro has bounced in the past two days. EUR/USD gained 100 pips after it retraced one third of its gains from last Thursday.
Commodities
Oil prices were very volatile as traders grappled with very weak sentiment and at multi-year lows. The move below $40 per barrel in Brent triggered a volatile mix of new shorts and short-covering that saw the price plummet to seven year lows before bouncing back 1%. WTI crude reached as much as 2% higher in late-morning US trade in a classic bear trap.
A mixed set of Chinese trade data and a return to safe-havens helped cushion the rout in metals with gold and copper prices higher while silver gave back early gains
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