Markets tumble as oil keeps falling - 11.12.2014

US stocks suffered their worst declines in about two months on Wednesday as continued slide in oil led to sell-off of energy, materials and industrials shares. The S&P 500 index fell 1.6%, to 2,026.14, its biggest one-day percentage drop since October 13. The slowing spending by energy companies has started impacting the prospects for companies providing services and equipment for companies in energy sector. The S&P 500 energy sector dropped 6% over the past three trading sessions. The losses on Wall Street come after seven consecutive weeks of gains for the S&P 500 and Dow Jones Industrial. Today at 14:30 CET US Initial Claims for the week ended December 6 and Retail Sales numbers for November will be published. The tentative outlook is positive, reinforcing the recent positive economic reports ahead of the Federal Open Market Committee’s December 17 Meeting that will be considering when to start increasing the interest rates. We expect the reports today will further contribute to the US dollar strengthening.

European stocks fell on Wednesday, led by losses in oil and gas stocks. Data released by French government confirmed earlier indications that Eurozone economy is slowing down as the report showed French industrial production fell 0.8% in October compared with September. Today at 10:00 CET European Central Bank publishes its Monthly Report, at 11:15 CET the Long Term Refinancing Option (LTRO) will be announced, with the targeted level of 148.2B euros against 82.6B euros of the previous LTRO. On the backdrop of falling inflation, the ECB’s liquidity injections have not provided sufficient stimulus for slowing eurozone economy, contributing to euro decline against major currencies. The current stage of LTRO will be more of the same medicine with no fundamental changes in Eurozone economic outlook in view and will most certainly contribute to further weakening of euro.

Japan's Nikkei share average is set for a third day of losses on Thursday. The yen fell for the first time in four days on speculation Prime Minister Shinzo Abe’s Liberal Democratic Party will win an election this weekend and extend measures that have weakened the currency. Japan’s export oriented economy has clearly benefited from Shinzo Abe’s weak yen policy, and we expect the Bank of Japan will need to maintain the stimulus further, which will contribute to further weakening of yen against other major currencies.

Crude-oil futures ended at a fresh five-year low on Wednesday, as the US Energy Information Administration data indicated oil inventories rose by 1.5 million barrels in the week ending December 5 against an expected drop of around 3 million barrels. A further push came from the news the Organization of the Petroleum Exporting Countries cut its 2015 demand expectations for crude. OPEC said earlier Wednesday it predicts that demand for OPEC oil would drop to 28.9 million barrels a day next year, compared with 29.4 million barrels a day in 2014.

Gold retreated on Wednesday as investors took profits following previous session’s gains even as US stocks slumped amid worries about an oversupply in global oil. Typically, investors seek the safety of gold during financial crises and steep declines in equities. In other metals trading, January platinum dropped, while March palladium gained 1.2%, to $821.40 an ounce. High-grade copper for March delivery dropped 1.2%, to $2.89 a pound.