Stocks fell yesterday as Oil and Commodity Prices again to new multi-year lows. The S&P 500 Index fell 0.82% (and now is a miniscule 0.23% up for 2015 as a whole) and was led by decline by material, energy and industrial stocks. These declines are having wide-ranging effects hitting energy and metal stocks and bonds as well as currencies and assets in producer countries. Mining stocks were badly hit as Anglo American announced a suspension in its dividend for two years and a cut in 85k jobs.
The Canadian dollar hit a new 11 year low against the US dollar. The South African Rand is at an all time low and the Australian dollar fell back to four year low. In overnight trading, most Asian indices are trading lower while European indices are relatively stable following 1%-2% falls in most indicies yesterday.
Yesterday big moves were in the oil and metals markets with the WTI contract trading at a low of USD 36.66 per barrel and the Brent contract going below USD 40 per barrel before recovering a little. Oil prices fell to new 10 year lows. Metals were also affected. Iron ore traded below USD 40 per tonne to a low of USD 38.65 which are the lowest in living memory.
The impact of these declines can be seen in the Bloomberg Commodity Index which fell to 79.42 which is just above the all-time low seen in late 1998.
Government bond markets were relatively stable with yields about 1-2 bps lower as shown in the table below.
Risky bonds however continue to be under great pressure and the yield spreads of such bonds over government have risen again in the last week as shown in the table below.
China’s inflation data showed a pick-up in consumer price inflation (+ 1.5% yoy) while producer prices continue to be under pressure -5.9%) as competition and deflationary pressures weigh on factory gate prices. This is consistent with the picture of buoyant services and severely stressed manufacturing goods markets. Meanwhile the PBOC cut the Yuan reference rate and the currency weakened (as shown in the chart below). This move has been interpreted as trying to get the currency to a weaker level which can be more easily defended as the US raises interest rates next week. This renewed weakness follows the release of data showing a sharp fall in Chinese foreign exchange reserves and follows last week’s inclusion of the Yuan in the SDR basket. All these suggest an official acceptance that a slow and gradual liberalisation will mean that the currency will be much more determined by market forces as by official diktat.
It will be a quiet day today. In Europe, we will see the release October trade numbers in Germany. In the US, the only data release of note is October wholesale inventories and trade sales data.
European stockmarkets are slightly higher this morning after yesterday’s falls and US stocks are currently expected to open higher later today.