London: A relentless slide in crude prices kept pressure on energy stocks and currencies exposed to oil exports on Friday, dampening appetite for riskier assets and encouraging investors to seek safety in core government bonds.
Brent crude dropped to a 5-1/2-year low of $62.75 a barrel and was set for a weekly loss of more than 8 per cent.
Falling oil prices have pushed up volatility across asset classes.
The Stoxx Europe 600 Oil & Gas Index fell 1.6 per cent, dragging down the pan-European FTSEurofirst 300 index which fell 1.4 per cent and was on course for its biggest weekly loss since May 2012. Political concerns over Greece also hurt European stocks, though the Athens general index edged higher after losing 20 per cent in three days.
Wall Street looked set to open lower, according to stock index futures.
The Norwegian crown, strongly linked to oil export revenues, hit an 11-year low against the dollar, while the Canadian dollar slumped to a 5-1/2 year trough against the greenback. There was no end in sight for the decline of the Russian rouble, which hit another record low.
“We’re reaching a point where there’s a risk of seeing corporate and sovereign defaults in energy-producing countries, which could revive global systemic risks,” said Christophe Donay, head of strategy at Pictet, which has $441 billion in assets under management and custody.
Global crude prices have plunged in recent weeks on massive oversupply, raising fears that deflation could hit economies around the world.
A spate of Chinese data triggered more concern for investors. Factory growth slowed more than expected last month to its second-worst reading since the global financial crisis and investment expansion hovered near a 13-year low.
Core government bond yields fall
All those concerns about deflation and slowing output helped inflows into ultra-safe German government bonds.
German 10-year yields — the Eurozone benchmark — dipped to a record low of 0.637 per cent. Yields moved lower after weak demand for the European Central Bank’s cheap bank loans on Thursday highlighted the problems it faces in inflating its balance sheet towards its intended 3 trillion euro target.
Earlier, Japan’s Nikkei stock average ended up 0.7 per cent, extending gains as robust US retail sales data lifted exporter shares, but they still managed to book a loss of 3.1 per cent for the week.
One potential risk to the US economy was reduced, at least temporarily, as the Senate approved a two-day extension of government funding late on Thursday to stave off shutdowns of federal agencies that otherwise would have begun at midnight.
Spot gold slipped about 0.5 per cent to $1,222.10 an ounce, though it was still on track for a gain of over 2 per cent for a week in which it reached a seven-week high, on Wednesday.
“Overall there is a feeling out there that traders are now going defensive on their positions and this is weakening the dollar, thereby adding some support to precious metals,” Saxo Bank’s head of commodity research Ole Hansen said.
