World markets decline on global growth ‘concerns’

Dollar drops; gold recovers from 5-month dip

NEW YORK, Dec 18, (Agencies): Global equity markets fell on Friday, pulled lower by concerns about slumping crude oil prices, while the dollar slipped against the yen on views the Bank of Japan may not ease policy as much as expected.

Investors were cautious in the wake of the euphoria that followed the US Federal Reserve’s first interest rate hike in almost a decade earlier in the week.

The yen gained after the BoJ merely tweaked its monthly asset-purchase program, putting a pause in the dollar’s rise in recent months on views that the Fed’s likely decision to raise interest rates and the BoJ’s path of more potential stimulus would drive investment into higher-yielding assets.

The Fed raised rates on Wednesday for the first time in almost a decade.

“The BoJ’s move shows a weak hand,” said Jens Nordvig, global head of FX strategy at Nomura in New York. “It suggests the BoJ is out of ammunition, and will not be able to deliver anything meaningful going forward,” he said.

The dollar, which had hit a more than two-week high of 123.590 yen, was last down 0.89 percent at 121.46.

The euro was up 0.18 percent against the dollar at $1.0844 . The dollar index, which measures the greenback against a basket of six other major currencies, was down 0.46 percent at 98.815.

Equities suffered from fatigue after markets had risen in anticipation of the Fed move, while the price of oil was driving investor sentiment on concerns over global growth and a growing supply surplus.

“We had a couple of strong days as a result of the Fed,” said Andrew Wilkinson, chief market strategist at Interactive Brokers LLC in Greenwich, Connecticut.

“The market is getting sucked into a fear trade,” he said. It’s really oil - is it a glut or a global slowdown? But I don’t think it’s symbolizing a slowdown in the global economy.”

US

Wall Street was lower in morning trading, with the Dow shedding about 200 points, on “quadruple witching” Friday as crude prices headed for their third straight weekly loss.

Volatility was slightly higher than usual on account of “quadruple witching,” the expiry of options on stocks and indexes as well as futures on indexes and single stocks.

Still, the S&P 500 and Nasdaq were set for their best weekly performance in a month, helped by gains before the Federal Reserve’s interest rate hike on Wednesday.

“I look at it as purely a sentiment-driven market. There’s no new news that’s any kind of substance that’s driving this,” said Jeff Powell, managing partner of Polaris Wealth Advisors in California.

“I think they will continue to trend as they are right now,” he said.

At 11:02 am ET (1602 GMT), the Dow Jones industrial average was down 201.6 points, or 1.15 percent, at 17,294.24, the S&P 500 was down 17.99 points, or 0.88 percent, at 2,023.9 and the Nasdaq Composite index was down 30.87 points, or 0.62 percent, at 4,971.68.

Nine of the 10 major S&P sectors were lower, led by the interest rate-sensitive utilities sector’s 1.78 percent fall.

Boeing’s 3 percent fall weighed the most on the Dow, while Microsoft weighed on the S&P and Nasdaq with a 1.1 percent decline.

Disney was down 2.9 percent at $108.79, after BTIG downgraded the stock to sell.

Global markets fell on Friday, with investors turning wary about the impact of a stronger dollar and weakening commodity prices on the global economy.

Europe

European stock markets slid on Friday as a rally inspired by the US interest rate hike petered out heading into the weekend break.

The Frankfurt and Paris exchanges closed down more than 1.0 percent while London ended the day off by 0.76 percent.

The euro picked up to $1.0845 in foreign exchange deals having fallen heavily Wednesday after the US Federal Reserve raised borrowing costs for the first time in almost a decade.

Europe’s main indices had rallied Thursday after the US central bank ended months of uncertainty surrounding interest rate policy.

“While Wednesday’s Fed rate hike removed one cloud of uncertainty from the markets... speculation about when the next one is likely to occur is not expected to remain too far away,” said Michael Hewson, chief market analyst at trading group CMC Markets UK.

The Fed raised its benchmark federal funds rate, locked near zero since the 2008 financial crisis, by a quarter point to 0.25-0.50 percent, saying the US economy is growing solidly.

The move highlighted a growing divergence in monetary policy between the US policymakers and their overseas counterparts.

UK

Britain’s top equity index dipped on Friday, with investors showing renewed caution in the wake of the euphoria that followed the US Fed’s interest rate hike, but the index was still poised for its biggest weekly gain in a month.

Equity markets around the world retreated after Thursday’s gains, as investors focused again on the underlying weaknesses in the global economy. Most British shares followed suit with the notable exception of the commodity sector, as prices of major industrial metals and oil rose.

“With the FTSE being slightly more weighted in the commodities and energy side of the equation, we were less negative than anyone else ... but I think US negativity is undoubtedly the catalyst for the mild reaction we’re seeing here in the UK,” Alastair McCaig, market analyst at IG, said.

The blue-chip FTSE 100 index was down 0.6 percent at 6,063.44 points by 1527 GMT, after gaining 0.7 percent in the previous session.

The losses on the FTSE 100 were broad-based, and among the top fallers was microprocessor designer ARM Holdings, down 2 percent in a week marred by profit and outlook warnings from chip designers such as Imagination Tech and Dialog Semiconductor.

Analysts also cited concerns surrounding potential weakness in shipment volumes of Apple’s iPhones next year. ARM Holdings’ technology powers Apple’s iPhone.

It was joined by British grocer Mark and Spencer, which retreated 1.7 percent on a target price cut from Exane BNP Paribas.

Asia

Asian stock markets fell back on Friday after a two-day rally boosted by the Federal Reserve’s interest rate hike, as the rout in oil prices returned to centre stage, with commodity-linked shares again taking a hit.

Exchanges from New York and Sao Paulo to London and Tokyo cheered the Fed’s widely-expected decision Wednesday to lift borrowing costs for the first time in almost a decade, which was taken as a sign of its confidence in the world’s top economy.

However, while European equities extended their advance on Thursday, Wall Street’s three main markets were dragged down by energy firms as oil prices tanked again on weak demand, a torpid global economy and a strengthening dollar.

Some of the names in the energy sector tumbled in US trade, including ExxonMobil, Chevron, copper and gold producer Freeport-McMoRan, and mining equipment maker Caterpillar.

Those losses were mirrored in Asia, with Sydney-listed Rio Tinto down more than two percent and BHP Billiton falling 0.9 percent, while Hong Kong-listed PetroChina shed 2.1 percent and CNOOC gave up 1.8 percent. Inpex sank 2.6 percent in Tokyo.

Among stock markets, Tokyo tumbled 1.9 percent on a stronger yen after a surprise tweak of the Bank of Japan’s stimulus fell flat as it failed to widen its crucial bond-buying scheme.

“At first it seemed like the BoJ was progressing with easing, but when you look at what’s inside that, it’s nothing much,” Ayako Seratni, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank, told Bloomberg News.

Oil

Oil edged down on Friday as bearish sentiment driven by oversupply rattled the market and was set to lead prices to a third straight weekly drop, the longest losing streak in four months.

Global benchmark Brent crude traded 1 cent lower at $37.05 a barrel at 1455 GMT. US crude futures fell to a near seven-year low of $34.41 a barrel but later recovered to $34.93, down 2 cents on Thursday’s close.

The global supply glut that brought prices close to 11-year lows this week means Brent will post losses for a third consecutive year, the first time that has happened since exchange-based oil trading started in the 1980s.

West Texas Intermediate (WTI) futures are set for a second straight yearly loss, the first time that will have happened for the US oil pricing benchmark since 1998.

“Prices are falling on continued bearish sentiment and maybe WTI has fallen on the conviction that it was priced too high against Brent,” said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt. The WTI-Brent spread fell to the lowest in 11 months earlier this week at $1.10 a barrel. The differential has since recovered to $2.10 as WTI made bigger losses.

Traders were preparing for even lower crude prices next year by taking up more put options to sell US crude in February should prices fall to $30, $25 or even $20 per barrel, according to Reuters data.

Prominent oil trader Pierre Andurand said prices could fall below $25 a barrel in the first quarter of 2016.

“Recent developments on the supply side continue to point toward inventory builds that will put pressure on oil prices to bring them further down to below $30/bbl (barrel) and possibly at/below $25/bbl in the first quarter of 2016,” Andurand wrote in a letter reviewing the Andurand Capital Management fund’s performance through November, seen by Reuters.

Gold

Gold rose on Friday, recovering from its biggest daily loss in five months as stocks and the dollar retreated, but remained near multi-year lows after the Federal Reserve lifted US interest rates for the first time in nearly a decade.

The metal has recovered some lost ground after bottoming out on Thursday at $1,047.25 an ounce, within a few dollars of a near six-year low reached on Dec 3.

Spot gold was up 0.8 percent at $1,059.80 an ounce at 1436 GMT, while US gold futures for February delivery were up $9.30 an ounce at $1,058.90.

The rate hike sparked a surge in the dollar and global stocks on Thursday, but led to a 2 percent slide in gold. Rising rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

Gold has tumbled 11 percent this year as investors awaited the rate rise. Now that it is out of the way, attention is turning to other factors.