Turmoil returned to global markets as oil plunged and European stocks sank to the lowest levels in 13 months, fueling a rush into haven assets.
Earnings exacerbated the rout, sending MSCI Inc.’s gauge of global equities to the brink of a bear market. Russia’s ruble and Mexico’s peso fell to records, while bets mounted on an end to Hong Kong’s dollar peg. Yields on 10-year Treasuries dropped below 2 percent and the yen jumped to a one-year high.
“There are a lot of things behind” the selloff, said Steven Schwarzman, the chief executive officer of Blackstone Group LP, in an interview Wednesday with Bloomberg Television’s Erik Schatzker from Davos, Switzerland. “You have economic things such as the slowing of the U.S. economy which has been pretty gradual. You’ve got energy going down so quickly that you can almost get windburn. You’ve got China as an issue which is is probably overdone. So when you put those factors together you have an unattractive brew along with the concern the Federal Reserve will raise rates and slow the economy further.”
Oil’s slump to a 12-year low is ripping through markets. Just on Wednesday, Royal Dutch Shell Plc said profit may drop at least 42 percent in the fourth quarter and Saudi Arabia was said to order a halt in selling options used to bet against its currency peg. U.S. bonds now predict the slowest inflation since May 2009. A report on Thursday will probably show U.S. crude stockpiles expanded, exacerbating the global glut.
“It’s back to oil and that’s what is driving everything,” said Barra Sheridan, a rates trader at Bank of Montreal in London. “We can easily run more because it’s pure fear. I don’t know what we need to change this sentiment.”
The Stoxx Europe 600 Index tumbled 2.5 percent at 8:35 a.m. in New York, with all industry groups declining. The MSCI All-Country World Index retreated 1.2 percent, extending its drop from a May high to 18.6 percent, nearing the 20 percent threshold for a bear market. More than $15 trillion has been erased from the value of global equities in the period, according to data compiled by Bloomberg.
Shell slid 5.5 percent and BHP Billiton Ltd. dragged commodity producers lower, falling 6.9 percent after trimming its full-year iron ore output forecast. Zurich Insurance Group AG declined 8.7 percent after forecasting a second straight quarterly loss for its biggest unit.
Standard & Poor’s 500 Index futures slid 1.6 percent. Goldman Sachs Group Inc. slipped 1.9 percent after reporting a 65 percent drop in fourth-quarter profit as an agreement to settle a U.S. probe into its handling of mortgage-backed securities reduced earnings.
The cost of living in the U.S. dropped in December, led by a slump in commodities, and New-home construction in the U.S. unexpectedly fell, government reports showed to day.
The MSCI Emerging Markets Index dropped the most in two weeks, sinking 2.8 percent to the lowest on a closing basis since May 2009. The gauge is down more than 12.6 percent this year, the worst start since records began in 1988.
Hong Kong’s Hang Seng China Enterprises Index tumbled 4.3 percent as oil producers plummeted and a drop in the city’s dollar spurred concern over capital outflows. The Shanghai Composite Index slipped 1 percent.
Russia’s Micex Index declined 1 percent and the Bloomberg GCC 200 Index of equities in Gulf markets lost 3.6 percent. Saudi Arabia’s Tadawul All Share Index sank 5 percent and Dubai shares slid 4.6 percent. Egypt’s benchmark tumbled 5.3 percent.
Russia’s ruble weakened as much as 3.1 percent to a record 81.0490 against the dollar. The Mexican peso fell to a record 18.4775 per dollar and is down 6.4 percent this year, making it Latin America’s worst performing major currency.
Saudi Arabian banks are under orders to stop selling currency products that allow investors to make cheap bets on a devaluation of the riyal, according to five people with knowledge of the matter. The Saudi Arabian Monetary Agency told banks not to sell options contracts on riyal forwards at a meeting in Riyadh on Jan 18., the people said, asking not to be identified as the information is private.
Hong Kong’s dollar traded near its weakest level since 2007 and forwards contracts sank as China’s market turmoil fueled speculation the city’s 32-year-old currency peg will end. Contracts to buy the currency in 12 months fell as much as 0.3 percent to HK$7.8904 per dollar, beyond the HK$7.75-HK$7.85 range that it can trade within under the existing exchange-rate system. The spot rate dropped to as low as HK$7.8272, within 0.35 percent of the weak end of its band.
West Texas Intermediate crude lost as much as 4 percent to $27.32 a barrel before trading 3 percent lower. Inventories probably increased by 2.75 million barrels last week, according to a Bloomberg survey before a report from the Energy Information Administration Thursday.
Industrial metals dropped on prospects for slower economic growth in China and sustained low oil prices. Copper fell as much as 1.1 percent.
Gold rose as renewed losses in equities spurred demand for less risky assets, with Citigroup Inc. saying bullion’s rationale as a haven was now back in vogue and prices may be supported over the first quarter.
Soybeans in Chicago dropped from the highest in almost four weeks on bets that ample supply in South America will damp prices.
The yen strengthened 0.8 percent to 116.68 per dollar, and touched 115.98, the strongest level since Jan. 16, 2015. Japan’s currency appreciated 0.9 percent to 127.19 per euro. The euro was little changed at $1.0908.
The Australian dollar slid 0.8 percent to 68.52 U.S. cents, extending this year’s decline to 6. percent. The kiwi touched the weakest level since Sept. 30.
The Canadian dollar, which has fallen every day this year, slipped to the lowest since 2003 amid speculation the central bank will cut its benchmark interest rate to a level last seen during the 2009 financial crisis.
The Bank of Canada decides on interest rates Wednesday, and private-sector economists are almost evenly divided on whether it will cut the policy rate to 0.25 percent.
Treasuries climbed, pushing 10-year yields to the lowest since October, as investors sought the safety of sovereign debt. The benchmark 10-year note yield fell nine basis points to 1.97 percent, according to Bloomberg Bond Trader data. That’s the biggest drop since Dec. 11.
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, shrank as much as three basis points to 1.37 percentage points, the narrowest since May 2009.
The yield on similar-maturity German bunds sank five basis points to 0.50 percent, while that on U.K. gilts fell seven basis points to 1.63 percent.
The cost of insuring corporate debt resumed increases. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies rose for the 10th time in 11 days, climbing three basis points to 99 basis points. An index of default swaps on junk-rated companies jumped 19 basis points to 397 basis points, the highest in more than a year.
Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd
The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.
The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.
The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.
The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.
Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.
The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.
Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins
Oil Prices Recover from 4 Percent Decline as Joe Biden Wins
Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.
This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.
Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.
On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.
“Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.
“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”
The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.
“There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.
“Either you’re crimping energy demand or consumption behavior.”
Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020
Revenue of OPEC Members to Drop to 18 Year Low in 2020
The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.
EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.
“If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.
The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.
It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.
It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.
“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”
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