|
 The plunge in China capped a miserable day for Asia, and European
bourses quickly followed suit, with shares in London, Frankfurt and
Paris tumbling 1.5 to 1.8 percent in a bumpy start to trading. [.EU]
Investors retreated to traditional safe-haven plays, sending the
Japanese yen back up against the dollar, gold higher and yields on
two-year German government debt to record lows deep in negative
territory. [GVD/EUR]
Derek Halpenny, European Head of Global Markets Research at Bank of
Tokyo-Mitsubishi, said the drop in Chinese markets was another blow
to sentiment but it was the fresh oil slump that was probably the
bigger concern.
"There was a natural question after the rebound last week whether we
were seeing a turning point," he said. "But this reversal again is
prompting investors to think there is more to come of what we have
had in the first three weeks of the year."
Brent crude was down another $1.13 at $29.37 a barrel as early
European trading gathered momentum, having dropped 5 percent on
Monday. U.S. benchmark WTI fell $1.03 to $29.31, having gone as low
as $29.25 overnight.
 The chairman of Saudi Aramco, the world's biggest oil producer,
added fuel to the oversupply story that has driven prices down 75
percent since their 2012 peak.
He said on Monday the firm was continuing to invest in oil and gas
production capacity despite other cost-cutting plans.
A senior Iraq oil official said its now record high output could
continue to rise, while Kuwait's OPEC governor said the organization
could not make cuts if non-OPEC countries were still cranking up
their production.
"Psychological factors have driven the severe volatility in the
market," said Kang Yoo-jin, a commodities analyst at NH Investment
and Securities based in Seoul, who added the situation was likely to
persist until concerns over oversupply eased.
CAUTION FRAGILE CHINA
Asia's turbulent session saw mainland Chinese shares slump more than
6 percent to a 14-month low in another sign that authorities in
Beijing have their work cut out in their efforts to stabilize the
fickle domestic markets.
There was more gloomy data, too, as China's annual rail freight
volume, viewed as a good temperature gauge of the giant economy,
fell 11.9 percent last year versus a drop of 3.9 percent in 2014.
The region's heavyweight indexes, Japan's Nikkei and Hong Kong's
Hang Seng Index fell 2.4 and 2.5 percent respectively too as the
first two-day run of gains of the year came to a shuddering halt.
[to top of second column] |
"Wherever you look - China, oil and the U.S., there is no clear
evidence of improvement in economic fundamentals," said Tatsushi
Maeno, managing director at PineBridge Investments. "So in the near
term, it is hard to expect risk asset prices to gain further."
The big currency market moves were inevitably in the emerging market
heavily linked to oil. [EMRG/FRX]
A 2.4 percent drop sent Russia's rouble back towards its recent
record low, while the South African rand, the Turkish lira and most
Asian units also drooped against the dollar.
Among the majors, the dollar was making way as it fell against the
low-yielding yen and euro. There was some extra caution on the
dollar ahead of the start of the first two-day meeting of the year
of the Federal Reserve.
Investors will comb the U.S. central bank's message to determine
what, if any, effect volatile global markets, plummeting oil prices
and fears of a Chinese slowdown will have on its previously stated
intentions to keep raising rates this year.
U.S. interest rate futures implied that traders put the chance of a
Fed rate hike this week at just 13 percent. Over the year, markets
are now pricing in only one hike, compared with the Fed's rate path,
which factors in at least four rises.
"There is a fair bit of nervousness going into the Fed meeting.
Interest rate markets have postponed rate hikes in 2016 and 2017 so
investors expect something dovish from the Fed, given the volatility
in stock markets," said Niels Christensen, FX strategist at Nordea.
(Additional reporting by Anirban Nag in London, Hideyuki Sano in
Tokyo, Meeyoung Cho in Seoul; Editing by Hugh Lawson)
[© 2016 Thomson Reuters. All rights
reserved.]
Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
