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 Stock markets rallied the previous day as oil prices rebounded on
prospects for lower temperatures on both sides of the Atlantic. But
on Wednesday benchmark Brent crude slid back below $37 a barrel,
with investors worried about slowing demand and high supplies.
The fall in oil prices has been a major driver of financial markets
this year, hammering energy companies, lowering inflation
expectations and reinforcing bets on loose monetary policy in Europe
and a slow tightening in the United States.
The pan-European FTSEurofirst 300 index fell 0.5 percent, while the
euro zone's blue-chip Euro STOXX 50 index declined by 0.6 percent,
having both gained in the previous session.
Asian shares unwound earlier gains, with continued weakness in
Chinese stocks. MSCI's broadest index of Asia-Pacific shares outside
Japan edged down 0.1 percent, on track for a flat monthly
performance and down 12 percent for the year.
"The ongoing weakness in the oil price is dragging down the
markets," said John Plassard, senior equity sales executive at
Mirabaud Securities in Geneva.
Crude prices have plunged by two-thirds since mid-2014 as soaring
output from the Organization of the Petroleum Exporting Countries
(OPEC), Russia and the United States led to a global surplus of
between half a million and 2 million barrels per day.
Spreadex analyst Connor Campbell added that a warning by the head of
the International Monetary Fund in a newspaper column that global
economic growth would be disappointing next year was further
pressuring markets.
The yen, which is traditionally sought at times of market
uncertainty, inched up to 120.425 yen per dollar. That left it close
to a two-month high of 120.05 yen hit last week.
DOLLAR LAGGING
The dollar was 0.1 percent lower against a basket of major
currencies, adding to a weak end to the year that has seen it fall
more than 2 percent in just under a month.
BNP Paribas currency strategist Michael Sneyd said there had been a
disconnect between the dollar and U.S. Treasury yields since the
Federal Reserve raised interest rates for the first time in almost a
decade earlier this month.
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"Since the Fed's liftoff, the dollar has lagged behind markedly. We
would put that down to most market participants being out of the
market at the moment," he said.
China's yuan fell to its weakest in over four years in offshore
trading, after the People's Bank of China set a lower midpoint.
Sources told Reuters the PBOC was temporarily suspending some
foreign banks' foreign exchange, in an effort to curb the yuan's
depreciation.
China's blue-chip CSI300 index was down 0.2 percent, while the
Shanghai Composite Index was flat, ahead of December manufacturing
activity surveys in the coming days which are expected to show the
economy remains sluggish.
Japan's Nikkei ended the country's final trading day of the year up
0.3 percent, off session highs but still gaining 9.1 percent for
2015. But it shed 3.6 percent in December.
On the last trading day of 2015 for European bond markets, 10-year
German Bund yields were flat at 0.63 percent and up nearly 10 basis
points on the year.
Gold ticked higher, with gains capped by weaker oil, although the
metal remained on track for a third successive yearly fall.
(Additional reporting by Sudip Kar-Gupta and Patrick Graham in
London, and Lisa Twaronite in Tokyo; Editing by Catherine Evans)
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