Oil slump rocks markets again in equity rout

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[January 20, 2016]  By Alistair Smout

LONDON (Reuters) - World stocks sank to their lowest levels since 2013 on Wednesday, hit by another tumble in oil to 13-year lows that kept global equities set for one of their worst monthly performances ever.

The MSCI World equity index fell 1.3 percent to its lowest level since July 2013, and the index's fall so far in January is already 9.9 percent, the biggest drop since 2009.

There have been steeper monthly drops only six times in the index's 28-year history, three of which occurred during the financial crisis of 2008/2009

"I am quite pessimistic about the equity markets for the next two to three months. I do not see a 2008-style scenario, but I do see a bear market coming," said Andreas Clenow, hedge fund trader and principal at ACIES Asset Management, suggesting a further 10 percent fall to come.

U.S. crude wallowed at its lowest since 2003 after the world's energy watchdog warned the market could "drown in oversupply". U.S. futures shed 2.9 percent to $27.63 while Brent crude lost 2.1 percent, having slipped below $28 earlier in the session.

European shares touched their lowest level since October 2014, following losses in U.S and Asian stock markets as the relentless slump in oil prices continued to drag on risk assets.

 

 

The FTSEurofirst 300 fell 2.8 percent, set for its biggest single session loss of an already turbulent 2016.

Germany's DAX, France's CAC and Britain's FTSE were all down around 3 percent and also set for their biggest fall of the year so far.

As well as oil, copper also slipped. Basic resources and energy sector fell 3.9 and 3.6 percent respectively.

Oil shares in Europe are down 13 percent already this year, also at their lowest levels since 2003. That has been a major weight on the FTSEurofirst 300, which is down around 10 percent in 2016, which investors see as "correction" territory.

U.S. stock futures were down 1.8 percent on Wednesday ahead of the open, after Wall Street had seen its early gains on Tuesday erased by the tumble in U.S. crude.

The safe-haven yen soared on Wednesday, as risk appetite soured, dragging the dollar to a one-year low, as investors trimmed the chances of more tightening by the Federal Reserve.

Demand for German Bunds, another safe-haven asset, was also high, and the 10-year Bund yield fell to its lowest level since May ahead of a European Central Bank policy meeting on Thursday.

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While the dollar fell against the yen, it was strong against emerging markets, compounding the misery for many countries already suffering from low oil prices.

Top emerging market shares fell 2.8 percent to a 6-1/2 year low, while EM currencies were crushed. Russia's rouble hit a new record low of 80.295 to the dollar.

"This is a different kind of dollar strength altogether ... this is quite clearly being driven by declining risk appetite, higher market volatility and lower commodity prices," said Aroop Chatterjee, a director of research at Barclays in London.

"In this new world emerging markets are the ones that bear the brunt of the dollar strength."

In Asia, stocks surrendered all of Tuesday's rare gains with MSCI's broadest index of Asia-Pacific shares outside Japan falling 2.9 percent on the day and hitting its lowest since October 2011.

The Hong Kong stock market's benchmark index posted its single biggest daily fall since early August, while Japan's Nikkei closed down 3.7 percent.

Chinese markets fared only marginally better amid mounting talk that more stimulus may be on the way, possibly before the Lunar New Year holidays in early February.

The CSI300 index fell 1.5 percent, after rallying more than 3 percent on Tuesday. The Shanghai Composite Index eased 1 percent.

(Additional reporting by Sudip Kar-Gupta and Marc Jones in London, Wayne Cole in Sydney and Saikat Chatterjee in Hong Kong; Editing by Richard Balmforth)

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