A surprise leap in Chinese commodity imports helped steady oil prices and energy-exposed currencies on Tuesday, though a second day of falls for world stocks and a two-month low for emerging market bourses kept the global mood subdued.
Investors were still struggling for confidence after Monday’s 6 per cent plunge in oil had whacked it to its lowest level of the year and the prospect of the first US interest rate hike in almost a decade next week also loomed.
European shares opened at their lowest level since mid October as energy and mining stocks fell sharply again and as manufacturing figures from Britain also saw a drop.
Currencies of major oil exporting nations such as the Canadian dollar and the Norwegian crown remained under pressure despite their slight recovery, while safe-havens like the yen and the low-yielding euro did well.
‘With oil prices falling and some even talking about oil falling to $30 a barrel, revenues for these countries will take a beating and hence their currencies will remain under pressure,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.
Brent, WTI crude
Internationally traded Brent futures were up 31 cents at $41.04 a barrel and US crude was at $37.82 in early European trading, though there was little certainty from traders that they would remain steady.
It has fallen 40 per cent since early May and has revived fears about global deflationary pressures and how countries that rely on it for revenues will cope.
Asia shares had also taken a hit overnight. Tokyo’s Nikkei ended down more than 1 per cent despite data showing Japan dodged recession in the third quarter, while Chinese stocks fell 1.8 per cent.
Though there was the surprise jump in commodities demand, overall Chinese imports fell for the 13th consecutive month with a 8.7 per cent decline in November compared to a year earlier.
“Beyond the December hike (by the Federal Reserve), investors are concerned about the lack of Chinese demand which is acting as a millstone around the neck of risky assets,’’ said Cliff Tan, East Asian head of global markets at Bank of Tokyo-Mitsubishi UFJ in Hong Kong.
Bond yields
German and other northern euro zone government bond yields nudged lower as investors retreated into safer areas, though Swiss yields inched up as bets on another rate cut this month from the Swiss National Bank (SNB) faded.
Greek 10-year yields rose to their highest level in almost three months, meanwhile, as concerns about the country’s ability to stick to its reform programme were stoked by critical comments on the IMF from Prime Minister Alexis Tsipras.
He accused the Washington-based global lender of making unrealistic demands both on Greece for tough reforms and on its euro zone partners for debt relief beyond what they can accept.
“The Fund must decide if it wants to compromise, if it will stay in the programme,’’ Tsipras said. “If it does not want that compromise, it should say so publicly.’’
Other than that it was all about what is expected to be the first post-financial crisis rise in US interest rates for bond markets.
Fed rate hike
Federal funds futures contracts imply a 80-per cent chance that the Fed will end seven years of near-zero interest rates at its December meeting and about even odds of a second rate rise by March.
Long-dated US Treasury debt prices held firm after rallying on Monday as the drop in oil prices pointed to benign inflation, potentially tempering the Fed’s policy tightening path.
On the currencies front, action around the China trade data was brief with the Australian dollar settling to new intraday lows at $0.7224 and receding further from a 3-1/2 month high of $0.7386 touched on Friday.
The euro was firm at $1.08560 following last week’s less-than-aggressive stimulus from European Central Bank and the offshore Chinese yuan traded at a three-month low of 6.4930 per dollar despite another lower-than-expected fixing by China’s central bank.