Oil drama drives shares lower in Asia and Europe

Reuters | | Updated on: Jan 24, 2018

European shares sank for a third day on Tuesday as a slide in oil prices showed no sign of easing off, supporting traditional safe-haven assets such as top-rated government bonds, the Japanese yen and the Swiss franc.

Asian shares had slumped overnight after another day of drama on oil markets that drove US crude to less than $50 a barrel for the first time since the first half of 2009 and handed Wall Street its worst losses in three months.

The resulting bid for safety drove the average of yields on German, US and Japanese 10-year debt to less than 1 per cent for the first time.

Also hit by a poor reading from a purchasing managers’ survey in Italy, all of Europe’s major exchanges were in negative territory an hour into morning trade.

“Global risk sentiment has been hurt by sliding stocks and oil prices. That is leading to a perception that there is a lack of demand and that has implications for global growth,’’ said Jeremy Stretch, head of currency strategy at CIBC World Markets.

The FTSEuroFirst 300 index of leading shares, along with France’s CAC 40 and Germany’s DAX, were all down 0.8 per cent. Britain’s oil and gas heavy FTSE index l ost 1.3 per cent.

Japan's Nikkei dropped 3 per cent, its largest fall in almost 10 months, while South Korean shares fell 1.7 per cent to a 1-1/2-year low.

Even high-flying mainland Chinese shares pulled back after hitting 5-1/2-year highs earlier in the session. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4 per cent.

The slide in oil prices has shown little sign of abating in the new year, plunging as much as 6 per cent on Monday as investors continue to reprice for broadly lower global demand and the impact of heavy US shale drilling.

Brent crude fell by another 1.5 per cent to less than $53 after data showed Russian oil output at post-Soviet era highs and Iraqi oil exports near 35-year peaks.

“Falls in oil prices are going beyond many people's expectations. This will put pressure on the earnings of US energy firms,’’ said Hirokazu Kabeya, senior strategist at Daiwa Securities in Tokyo.

Hit by the drop in US 10-year yields and the general concern over global growth it reflects, the dollar fell more than half a per cent against the yen to as low as 118.65 yen . It was also marginally lower against the Swiss franc, at 1.00655 francs.

For the moment, that has done little to dent the conviction of banks that the dollar will continue to rise this year.

“I would be a bit cautious about extrapolating too much so early in the year,’’ said CIBC's Stretch.

“This dip in risk appetite is likely to be temporary, and we should see the dollar recover against the yen and expect the euro to head lower.’’

Published on January 06, 2015
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