In­vestors re­main twitchy about fall­ing oil prices

The Pak Banker - - OPINION - Jon­nelle Marte

GLOBAL equity mar­kets saw a brief respite from the sell-off late last week, but with in­vestors still on edge be­cause of sink­ing oil prices, the break did not last. U.S. stocks sold off Mon­day, with losses ac­cel­er­at­ing dur­ing af­ter­noon trad­ing. The Dow Jones in­dus­trial av­er­age fell 208 points, or 1.3 per­cent. The Stan­dard & Poor's 500 stock-in­dex and the tech-heavy Nas­daq were both down 1.6 per­cent. By the end of trad­ing, oil slipped back below $30 a bar­rel for WTI crude, land­ing at $29.78, a 7.4 per­cent slide.

The do­mes­tic losses came af­ter U.S. eq­ui­ties notched their first weekly gains of the year on Fri­day and af­ter stocks rose on Mon­day in Asia and Europe, but just barely. In­vest­ment an­a­lysts say the sell­ing may con­tinue as wor­ries linger over the pace of eco­nomic growth in China and the abil­ity of the world's se­cond-largest econ­omy to drag the United States into a re­ces­sion. In­vestors, ner­vous about the slide in oil prices with a glut in the global sup­ply, are twitch­ing at ev­ery shift in the oil mar­ket.

Even an­a­lysts who ex­pect the U.S. econ­omy to stay afloat with the help of ro­bust jobs growth and lower prices at the gas pump say they are brac­ing for more mar­ket volatil­ity. "This has all of the mak­ings of a very typ­i­cal, clas­sic mar­ket cor­rec­tion," said David Ber­man, chief ex­ec­u­tive of Ber­man tral banks for re­as­sur­ance. Last week, the Peo­ple's Bank of China pumped more than $100 bil­lion in short- and medium-term loans into its fi­nan­cial sys­tem. And a sig­nal from Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi calmed mar­kets af­ter a whiteknuck­led Wed­nes­day. He sug­gested that fur­ther sup­port for the econ­omy might be on its way at the ECB's March meet­ing. On Mon­day in Asia, mar­kets closed es­sen­tially flat af­ter a drop in oil prices snuffed out the re­lief rally that was spurred by last week's gains in U.S. mar­kets and ex­pec­ta­tions that the Bank of Ja­pan would an­nounce more stim­u­lus this week.

The bench­mark Shang­hai Com­pos­ite In­dex closed up 0.8 per­cent and the Nikkei Stock Av­er­age in Ja­pan rose 0.9 per­cent. In the United States, the East Coast was dig­ging out from its his­toric snow­storm, which kept many work­ers home Mon­day. The New York Stock Ex­change, which rarely closes for weather events, was open for busi­ness as usual.

In­vestors will be watch­ing this week's meet­ing of the Fed­eral Re­serve, which con­cludes Wed­nes­day. As con­cerns over mar­ket volatilty in­crease and sink­ing oil prices point to a po­ten­tial slack­en­ing in global de­mand for fuel, in­vestors will search for hints that the Fed will move care­fully be­fore agree­ing to the next rate in­crease.

Mar­kets are in search of sta­bil­ity af­ter get­ting off to one of the worst starts in his­tory. As of Fri­day af­ter­noon, both the Dow and the S&P 500 were down 7 per­cent for the year. An­a­lysts and fi­nan­cial ad­vis­ers said they ex­pect the sell­ing to con­tinue un­til in­vestors are re­as­sured that the do­mes­tic econ­omy is strong enough to with­stand the slow­down in China and other emerg­ing mar­ket economies.

In­vestors are also look­ing for clar­ity on whether low oil prices will be a bonus for the U.S. econ­omy or will lead to more in­sta­bil­ity. While lower oil prices are viewed as a boon for driv­ers sav­ing on gas, the slide in crude also puts more pres­sure on en­ergy com­pa­nies to cut back pro­duc­tion and lay off work­ers. Last week, Sch­lum­berger, the largest oil field ser­vice provider in the world, said it was elim­i­nat­ing 10,000 jobs af­ter suf­fer­ing a $1 bil­lion quar­terly loss.

If oil prices level off, the shift could in­spire op­ti­mism with con­sumers and in­vestors alike, said Chris Hyzy, chief in­vest­ment of­fi­cer for the global wealth and in­vest­ment man­age­ment divi­sion of Bank of Amer­ica. Those driv­ers who may have hes­i­tated to spend their sav­ings ini­tially could start to splurge now that the low prices have per­sisted, he said. "All of the things the U.S. con­sumer is spend­ing money on," Hyzy said, "it will be­come more vis­i­ble by the end of the year."

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