Oil rout hits global equity markets

US oil prices tumble to 13-year-low, hits global stock markets

Photo by: Reuters (Archive)
Photo by: Reuters (Archive)

A pump jack stands idle in Dewitt County, Texas on January 13, 2016

Global equity markets dropped to their lowest levels in 2-1/2 years on Wednesday to put them on pace for one of the most dismal monthly performances on record, as oil once again tumbled to 13-year lows.

The MSCI World equity index slumped 3.4 percent to its lowest level since June 2013. The index has already dropped 11.1 percent in January, which if sustained would be the worst monthly loss since October 2008, the month after Lehman Brothers went bankrupt.

The declines left the index down 20.5 percent from its high on May 22, confirming a bear market on an intraday basis, generally defined as a drop of more than 20 percent.

Wall Street tumbled more than 3 percent, with each of the 10 major S&P sectors down more than 2 percent, led lower by a drop of almost 6 percent in the energy sector. Nearly 200 stocks in the benchmark S&P were down 20 percent or more from their 52-week high.

The Dow Jones industrial average fell 502.56 points, or 3.14 percent, to 15,513.46, the S&P 500 lost 59.34 points, or 3.15 percent, to 1,821.99 and the Nasdaq Composite dropped 126.79 points, or 2.83 percent, to 4,350.16.

There have been steeper monthly drops only three times in the MSCI World index's 28-year history, two of which occurred during the financial crisis in 2008.

"The damage being done in energy is spreading," said Brian Fenske, head of sales trading at ITG in New York.

"Just getting up every morning and seeing the S&P futures down 1 to 2 percent has a near-term psychological impact and puts some investors into risk-off mode," Fenske said.

US crude plunged to a low of $26.30, its lowest since May 2003 after the International Energy Agency warned the market could "drown in oversupply." WTI was last off 6.6 percent to $26.59 while Brent crude lost 4.8 percent, to $27.38.

European shares closed at their lowest level since October 2014, with the FTSEurofirst 300 down 3.3 percent, to notch its biggest single-session decline in six weeks.

France's CAC and Britain's FTSE both tumbled more than 3 percent for their worst session declines of the year and Germany's DAX lost 2.8, for its worst daily drop since the first trading day of 2016.

Another key commodity, copper, slipped 1.1 percent, driving falls of 5.2 and 5.1 percent respectively in Europe's basic resources and energy sectors.

Oil shares in Europe are down more than 14 percent already this year and at their lowest levels since March 2003. That has been a major weight on the FTSEurofirst 300, which is down nearly 12 percent in 2016 and more than 23 percent from its high in April.

The Nikkei share average shed 3.7 percent to its lowest close since Oct. 24, 2014.

The safe-haven yen climbed as risk appetite soured, dragging the dollar to a one-year low, as investors trimmed the chances of more tightening by the Federal Reserve. The US currency was down 1 percent at 116.44 yen after hitting a session low of 115.96 yen.

While the dollar fell against the yen, it was strong against emerging market currencies, compounding the misery for many countries already suffering from low oil prices.

Demand for US bonds, another asset sought in times of uncertainty, was high, with yields on benchmark 10-year Treasury notes down to 1.9477 percent, after falling as low as 1.93 percent, up 25/32 in price.