Stocks, commodity currencies slide as oil falls back below $30

LONDON: Oil prices slipped back below $30 on Friday, keeping alive worries about global growth that again hammered commodity currencies and left investors braced for a third straight week of losses on world stock markets.

The pan-European FTSEEurofirst 300 hit a new 13-month low, while Asian shares skidded to 3-1/2 year lows. That did not bode well for the US stock market open, with futures trading almost 2 per cent lower.

Oil prices, which posted their first significant gains for 2016 on Thursday, hit 12-year lows as the prospect of additional Iranian supply put the market under renewed pressure.

Brent crude fell 3.5 per cent to $29.82, while US crude slid almost 5 per cent to $29.70. Both were heading for a weekly loss of more than 10 per cent following a similar tumble last week.

The collapse in oil prices has spooked financial markets and battered an array of assets from commodity currencies to mining stocks as investors fret about the health of the global economy.

A slowdown in China, long the world’s main growth engine, and volatility in its markets had made for a shaky start to 2016.

“There’s an awful lot of uncertainty out there and oil prices continue to decline below that key $30 a barrel mark,” said Michael Hewson, chief market analyst at CMC Markets.

“The big question is where oil will bottom out and until we have some clarity on that markets are going to remain exceedingly feral.” RISK-OFF MSCI’s broadest emerging share index slipped around 1 per cent on the day to a fresh 6-1/2-year low, and was poised for a drop of more than 3 per cent over the week.

In Europe, global miner BHP Billiton shed more than 6 per cent after it said it would write down the value of its US shale assets by $7.2 billion.

“It’s another risk-off day,” said Chris Scicluna, head economic research at Daiwa Capital Markets. “We had an awful session in Asia and that has spilt over into Europe.” Both China’s major stock indexes shed more than 3 per cent, raising questions about Beijing’s ability to stop a sell-off that has now reached 18 per cent since the beginning of the year.

Chinese shares extended their losses after data showed new yuan loans in December were well below the previous month’s lending, and broad M2 money supply growth also slowed, with both missing expectations.

China will publish a host of data on Monday and Tuesday, including fourth quarter gross domestic product.

US retail sales data due later on Friday will also be on investors’ radar as they try to gauge the likelihood of the Federal Reserve raising interest rates again in March.

The combination of sliding oil prices and China concerns delivered another knock to commodity-linked currencies.

The Canadian dollar fell to 13-year low at C$1.4545 against its US counterpart, while the Australian dollar fell to its lowest in almost seven years at $0.6870.

“The oil market is just a mess and it all seems to be stemming from that,” said Tobias Davis, a currency hedging manager with Western Union in London.

The US dollar was weaker against the euro and the yen, helping push the dollar index. down marginally to 98.980.

China’s yuan meanwhile weakened sharply offshore, opening up a gap of more than 1 per cent with the steady onshore market, despite central bank efforts earlier in the week to squeeze out speculators.

And as oil prices resumed their slide, investors continued to lower their inflation expectations, pushing down government bond yields.

Two-year US Treasury yields fell to 0.862 per cent, their lowest level in two months, while Germany’s benchmark 10-year Bund yield fell 3.5 basis points to 0.48 per cent.

A key indicator of the Eurozone markets’ long-term inflation expectations, the five-year, five-year forward break even rate, also fell sharply.