Oil’s spill sends commodities sliding
london — A slump in oil prices to the lowest in almost six months rattled markets on Friday, prompting a rally in safe-haven bonds, the yen and gold and taking the shine off a record-breaking week for world stocks.
Bourses flinched in both Asia and Europe and Wall Street also looked set for a subdued start as investors, who had been expecting to spend the day mostly looking ahead to US jobs data and tomorrow’s French elections, were caught off guard.
Traders had to duck for cover overnight as both Brent and US crude fell more than three per cent amid record trading volumes on mounting concerns about global oversupply.
Things only fully stabilised when Saudi Arabia’s Opec chief hit the wires in European hours, saying there was a growing consensus among oil pumping countries that they needed to continue to “rebalance” the market.
Brent clawed back to $46.86 a barrel almost two dollars better off than its overnight low, but the scars left it an eye-watering six per cent lower than at the start of the week.
“The whole commodity complex has been affected by this and it could have some pretty big implications if it continues for much longer,” said Saxo bank’s head of forex strategy John Hardy.
“If you look at global risk appetite, equities have been pretty quiet and that feeds into FX as well if carries on and there is a risk switch,” he added.
Big commodity price drops do not just have have an immediate impact on financial markets either. As was seen during a slump between 2014 and 2016, they cause major headaches for countries that rely on their revenues. They also unleash deflationary forces, but can help energy-importing economies, firms and households by lowering their energy bills. Oil has not been the only commodity that has suffered this week.
Chinese iron ore futures fell almost seven per cent in Shanghai overnight after tumbling eight per cent on Thursday.
The Canadian dollar, the Australian dollar and Russia’s rouble — some of the world’s most commodity-sensitive currencies — were all sent spinning, falling respectively to 14-month, four-month and seven-week lows. They all fought back, though, after the Saudi Opec governor’s comments to Reuters that: “A six-month extension [to production cuts] may be needed to rebalance the market, but the length of the extension is not firm yet.”
In calmer waters, the euro touched a six-month high of almost $1.10 ahead of France’s weekend election. —