Global stocks sell off as oil decline continues

US stocks ended little changed on Tuesday as a late session rebound in materials and healthcare stocks offset sharp losses in energy stocks. The dollar weakened while euro and yen strengthened as investors reversed trades in high yielding currencies of emerging markets funded by euro and yen. According to live dollar index data the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, fell 0.5% to 96.0730. The S&P 500 was off less than 0.1% at 1852. The energy sector lead the decliners, closing down 2.5%. The Dow Jones Industrial closed at 16014.38, also off less than 0.1%. Energy stocks tumbled as the decline in oil price continued. Chevron led the decliners in Dow components, Chesapeake Energy was down 4.4% after 33% plunge on Monday. Bank stocks suffered further losses on expectations of higher default rates among corporate borrowers and lower likelihood of higher interest rates as concerns mount about start of a recession in US economy. Today at 16:00 CET Federal Reserve Chair Janet Yellen will testify to the House Financial Services Committee about economic and monetary policy. Investors will be watching closely for indications of any change in Federal Reserve’s outlook on US economy. We expect Janet Yellen will point to the strength of US labor market, particularly recent gains in wages and falling unemployment in support of central bank’s shift to monetary tightening, and will indicate that further rate hikes are on track but likely at a slower pace.
European stocks fell for the seventh straight session as falling oil prices and concerns about global economic slowdown undermined investor confidence. The euro strengthened against the dollar trading at $1.1289 late Tuesday after hitting highest level since October 22 earlier in the session. The Stoxx Europe 600 index ended 1.6% lower. Germany’s DAX 30 ended lower at 8879.40, losing 1.1% after a 3.3% drop pushed it into a bear territory on Monday. France’s CAC 40 was down 1.7%. The slide in bank stocks continued as investors revised downward the outlook for the sector in light of expected slowdown in global economic growth. Deutsche Bank shares lost 4.3%, UBS Group tumbled 5.6% and Credit Suisse Group sank 8.4%. Data released in Germany showing unexpected fall in industrial production in December didn’t help improve market sentiment either. Today at 10:30 CET December Manufacturing and Industrial Production will be released in UK. The tentative outlook is positive. At 16:00 CET the GDP growth in the three months ending in January will be published by the National Institute of Economic and Social Research in UK.
Nikkei fell 2.3% today as investors sold off equities on worsened global economic outlook and yen continued strengthening against the dollar after hitting 15-month high overnight. As investors sought the safety of government bonds 10-year yield for Japanese government bond turned negative for the first time on Tuesday before recovering to 0.01%. Bank stocks suffered further losses, with recent outperformers such as food companies and drug makers falling 3.6% and 3.8% respectively in a broad selloff.
Oil futures prices are moving higher today after falling for the fourth session in a row on Tuesday. March WTI fell 5.9% to $27.94 a barrel on Nymex, April Brent crude sank 7.8% to $30.32 a barrel on London’s ICE Futures exchange as US Energy Information Administration cut its 2016 forecasts for crude prices. While EIA forecasts US shale oil output will fall by 92,000 barrels a day in March from February, the agency estimates global crude supply will exceed demand growth throughout the year. Today at 16:30 CET US Crude Oil Inventories will be released by the Energy Information Administration. US crude stocks are expected to rise with a report of an industry group American Petroleum Institute indicating a build of 2.4 million barrels for last week.