Oil prices slumped to 5-1/2-year lows on Monday, pulling down emerging market assets and boosting demand for the safe-haven yen, while global equity markets fell further after last week’s rout amid nagging worries about worldwide growth.
Stocks retreated as crude oil prices gave up early gains after the Organization of the Petroleum Exporting Countries restated its determination not to cut output despite a global energy glut. Major European stock indexes fell more than 2 percent, while the Nasdaq fell 1 percent, with the Dow and S&P 500 also losing ground after earlier falling about 1 percent each. The ruble hit record lows and Russian assets plunged on concern about possible new U.S. sanctions over Ukraine, weak oil prices and one-sided bets that the currency would extend its slide.
A rise in yields on U.S. Treasuries was limited by persistent concerns about weakening growth and inflation globally. U.S. stocks dipped even as U.S. manufacturing output posted its biggest gain in nine months in November as production expanded across the board, pointing to underlying U.S. economic strength. “The continued free-fall in crude is the main thing here,” said Uri Landesman, president at Platinum Partners in New York.
Landesman said the benchmark S&P 500 could fall further and test 1,750, a decline that would mark the year’s first correction as defined by a drop of 10 percent or more, despite several sharp sell-offs that never met the definition in 2014. The Dow Jones industrial average closed down 99.99 points, or 0.58 percent, at 17,180.84. The S&P 500 fell 12.7 points, or 0.63 percent, to 1,989.63 and the Nasdaq Composite shed 48.44 points, or 1.04 percent, to 4,605.16. The benchmark S&P 500 has declined 4.3 percent since peaking at an all-time high on Dec. 5. In Europe, the FTSEurofirst 300 index of top regional shares fell 2.35 percent to close at 1,290.65 while MSCI’s all-country world index, which measures stock performance in 45 countries, fell 1.22 percent to 403.74. The broad STOXX 600 fell 2.2 percent in Europe, and has dropped 7.9 percent over the past six sessions, wiping out about $710 billion in market capitalization.
“The drop in oil would normally be good news for the European economy, but in this case it’s actually bad news because it seriously raises the risk of deflation,” said Christian Jimenez, fund manager and president of Diamant Bleu Gestion in Paris. MSCI’s emerging markets index fell 1.7 percent, with Brazil’s Bovespa index off 2.1 percent and Mexico’s bolsa index down 3.3 percent. Brent crude hit a five-year low near $60 a barrel before paring losses, settling down 79 cents at $61.06. U.S. crude for January settled down $1.90 at $55.91, a price last seen in May 2009.
Growth worries have supported bets the Federal Reserve might consider keeping its pledge to leave U.S. short-term interest rates near zero for a “considerable period” in its latest policy statement at the end of a two-day meeting on Wednesday. The price on benchmark 10-year Treasury notes fell 4/32 in price, pushing the yield up to 2.1182 percent. The euro was last down 0.21 percent against the dollar at $1.2434. The dollar was 0.90 percent lower against the yen at 117.70 yen. –Reuters