Wednesday 28 September 2016

Stock markets hammered as oil drops to $29 a barrel

Published 16/01/2016 | 02:30

Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York. Photo: Reuters
Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in New York. Photo: Reuters

The Iseq index of Irish shares has seen roughly €900m a day wiped out since the start of the year, on average, as fears over China sent global markets into a tailspin.

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European shares have now given up more than 12 months of gains after falling sharply again yesterday on the back of a collapsing oil prices.

Brent crude oil prices, which have fallen 20pc since just the start of 2016, dropped nearly 6pc yesterday to a 12-year low of $29 a barrel as investors brace for the easing of sanctions against Iran that will add to an already saturated market.

Oil dropped below $30 a barrel with nothing to indicate the end is in sight yesterday.

European shares fell to the lowest since December 2014, hit by losses in commodity-related stocks after BHP Billiton announced a $7.2bn writedown on its US shale-oil assets.

In Dublin, the ISEQ index suffered a second consecutive week of losses, bringing it back to October levels.

The ISEQ has fallen almost 7pc since December 31 -knocking about €9bn off its overall valuation in just 10 trading days.

In London, the worse hit FTSE 100 has fallen to the lowest level since 2012.

Fears over a slowdown in China, and the risk it could trigger a decline in global trade, have driven a massive two-week sell off in financial assets. Oil and metal prices, and commodity producers, have been worst hit.

But the sell-off on the markets is becoming more and more general. Yesterday's plunge hit some of the biggest names on Wall Street, sending Goldman Sachs down 3.4pc and chip-maker Intel down more than 3.9pc after it reported weak results.

All 10 major sectors represented in the Standard & Poor's index were negative.

"When we started off the year, we were at the crossroads of concern and optimism and clearly, we've gone down the road of concern pretty quickly," said Dan Farley, regional investment strategist at US Bank Wealth Management.

In China, the main Shanghai composite stock market index is down 21pc from a recent high in December. That scale of drop in just three week means it is regarded as a Bear Market - one that risks becoming self sustaining unless some catalyst emerges to underpin confidence.

European markets are down 20pc from their last high back in January - again enough to meet most definitions of a Bear Market.

Irish shares ended last year up almost 30pc, and even with recent falls remain in positive territory compared to a year ago. As investors sentiment has soured bearish analysts have become increasingly outspoken. A note from Royal Bank of Scotland this week warned investors to "sell (almost) everything" and compared economic conditions at the start of 2016 to the period in 2008 before the collapse of Lehman Brothers bank and subsequent Financial Crash.

China is the big fear but European stocks accelerated losses yesterday after weak US data. Expectations that the US Federal Reserve will continue to raise interest rates this year are starting to fade, weakening the dollar.

Investors will be picking through the corporate results due in the coming weeks for signs about the wider economy, especially among China-exposed exporters. (Additional reporting Bloomberg/Reuters)

Irish Independent

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