Another miserable Friday has set up Asian markets for a nasty sell-off today, which will be complicated in Australia by the release of the mid-year economic statement from the embattled Abbott Government just after midday.
Our market is heading for a 1.1% plunge at the opening, if the 63 point drop forecast by futures market trading is any guide – and it looks pretty spot on after the Dow lost more than 300 points overnight Friday as oil prices continued to plunge to a succession of five year lows.
The dollar ended the week well above 82 USc at 82.47. The local stockmarket lost more than 2% last week and is again in loss for the year so far. That position will be added to today.
The accelerating slide in oil prices triggered turmoil across international financial markets on Friday night, ending a rough week for energy stocks and others in the services sector that has forced investors to sell shares and corporate bonds.
The trigger on Friday for the turbulent end of the week was the International Energy Agency which again cut its demand growth forecasts for 2015, saying the dramatic plunge in prices had so far failed to stimulate buying.
A cut in the IEA’s forecast in November helped set up the latest month long slump in prices.
Its remarks and cuts to its 2015 oil forecast sent crude prices to fresh five-and-a-half-year lows and brought the decline for the week to more than 10% for Brent crude in Europe and 12% for West Texas Style oil in the US.
Brent crude fell $US1.95 to $US61.73 a barrel while West Texas dropped $US2.23 to $US57.72 — a level it last reached in May 2009.
West Texas crude continued to fall in after hours trading and it ended the week down 4.1% at $57.49, another five and a half year low.
WTI’s continuing slide under the $US60-a-barrel level is sending shock waves through equity and bond markets where the average yield on high yield bonds issued by shale oil-based companies hit 7% on Friday – which is normally the level that sovereign bonds such as those issued by Italy or Spain start sending warning signals to the market of rising tensions.
Wall Street (and markets in Europe and parts of Asia) were left battered and confused on Friday night.
On Wall Street, the S&P 500 ended the week with the biggest loss in two-and-a-half years.
The Dow Jones Industrial Average recorded its biggest weekly fall since September 2011, ending seven weeks of gains. Nasdaq was also lower.
Much of last week’s selling, especially on Friday, was closely tied to the precipitous decline in oil prices, which continues to stoke fears that the global economy is slumping towards deflation – even in the US where producer prices fell for a second month in a row.
The S&P 500 closed down 32.94 points, or 1.6% at 2,002.39 and lost 3.5% over the week. The Dow dropped 312.04 points, or 1.8%, to 17,284.30 and had a weekly loss of 3.8%. The Nasdaq ended the day with a loss of 54.57 points, or 1.2%, at 4,653.60 and dropped 2.7% over the week.
In Australia, our market will start down and well in the red after shedding 2.2% in value last week for the ASX 200 and 2.1% for the All Ords.
The ASX 200 Index and the All Ordinaries Index closed last week at 5219.6 points and 5372.8 points respectively,
The rapid slide in oil prices continues to catch markets unawares.
The ASX 200 is now down 2.5% for the year so far with only 11 trading sessions left and two of those half sessions on Christmas and New Year’s eves respectively. In the US, last week’s 3.5% crunch for the S&P 500 has cut its gain for the year to date to 8.3%.
US traders point out that the S&P energy sector has fallen 18% since the start of October, while nearly 20% of lower rated US energy bonds are now trading as distressed securities with yields close to or above 7%.
