Wellington/London: Stocks fell around the world and bonds jumped as a 5 percent slump in crude oil sent markets reeling after Chinese shares tumbled into a bear market.
Oil is sliding for a third week on signs Iranian exports may add to a global supply glut. Commodity producers led losses in Europe and currencies including the Canadian and Australian dollars slid.
Bonds gained as the outlook for inflation soured while a measure of credit risk for investment-grade companies in Europe climbed for an eighth day. The Shanghai Composite Index wiped out gains from an unprecedented state-rescue campaign.
Crude’s drop to a 12-year low is sending shock waves around the world. Norway sees a crisis in its industry, energy firms are laying off workers and currency markets from commodity- producing countries are in turmoil.
The slump is also denting the outlook for inflation around the world, causing traders to curb bets on how far the Federal Reserve will raise interest rates this year. A bond-market gauge of expectations for UK inflation dropped to the lowest since 2009.
“One of the main drags on the market today is that oil may close at the lowest in 12 years and in Europe it raises the concern about deflation,” said John Plassard, senior equity- sales trader at Mirabaud Securities LLP in Geneva.
“European equities will continue to be under pressure as we go through earnings in the last quarter as investors will probably stay on the side-lines as they wait to see those results.”
West Texas Intermediate crude fell as much as 5.8 percent, before trading 5.5 percent lower at $29.49 a barrel at 7:31 a.m. in New York. Brent fell 4.8 percent to $29.54 a barrel.
International sanctions on Iran may be lifted Monday, allowing for a boost in oil shipments from the fifth-biggest member of the Opec. Iran is trying to regain lost market share and doesn’t intend to pressure prices with an export increase once sanctions are removed, officials from its petroleum ministry and national oil company said this month.
Gold, up 0.5 percent yesterday at $1,083.28 an ounce, is headed for its worst week since November after failing to overcome resistance watched by traders who study charts near its 100-day average.
Futures on the Standard & Poor’s 500 Index slid 1 .5 percent, after the index gained 1.7 percent on Thursday. .
The MSCI Emerging Markets Index fell 1.5 percent on Friday and 3.7 percent this week.
Government bonds advanced across Europe as investors sought the safety of fixed-income securities.
The yield on German 10- year bunds, the region’s benchmark bonds, declined three basis points to 0.54 percent. In the UK, the two-year gilt yield dropped as low as 0.45 percent, the least since May.
US Treasuries gained as traders pulled back expectations for the number of Fed interest-rate increases this year. Data shows they expect the effective fed funds rate will rise to 0.7 percent in a year’s time compared with policy maker estimates for four.
Bloomberg
