Oil edges off 2015 low but stocks stay slippery
December 8, 2015 (Source: Reuters) — A surprise leap in Chinese commodity imports helped steady the ship for oil prices and energy-exposed currencies on Tuesday, although world stocks fell for the second day emerging market bourses hit a two-month low.
Investors were still struggling for confidence after Monday’s 6 percent plunge in oil [O/R] had whacked it to its lowest level of the year and the prospect of the first U.S. interest rate hike in almost a decade next week also loomed.
European shares .FTEU3 were down 1 percent at their lowest level since mid October as energy and mining stocks .SXPP fell sharply again [.EU] and futures prices pointed to Wall Street starting firmly in the red too. ESc1 ECONG7
Currencies of major oil exporting nations such as the Canadian dollar CAD= and the Norwegian crown NOK= remained edgy despite their stabilization, while safe-havens like the yen JPY= and the low-yielding euro EUR= did well.
“If you are looking to play weak oil prices you would want to sell the Canadian dollar and the Norwegian crown,” said Jeremy Stretch, head of currency strategy at CIBC World Markets.
“With oil prices falling and some even talking about oil falling to $30 a barrel, revenues for these countries will take a beating and hence their currencies will remain under pressure.”
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Internationally traded Brent oil futures LCOc1 were up 62 cents at $41.37 a barrel and U.S. crude CLc1 was at $38.02 ahead of U.S. trading, though there was little certainty from traders that they would remain steady.
It has fallen 40 percent since early May, reviving global deflationary pressures and concerns about how countries that rely on it for revenues will cope.
Asian shares had been hit overnight too. Tokyo’s Nikkei .N225 ended down more than 1 percent despite data showing Japan dodged recession in the third quarter, while Chinese stocks fell 1.8 percent.
Though there was the surprise jump in commodities demand, overall Chinese imports fell for the 13th consecutive month with an 8.7 percent decline in November compared to a year earlier.
“Beyond the December hike (by the Federal Reserve), investors are concerned about the lack of Chinese demand which is acting as a millstone around the neck of risky assets,” said Cliff Tan, East Asian head of global markets at Bank of Tokyo-Mitsubishi UFJ in Hong Kong.
Even normally ultra-safe bond markets provided little refuge.
German and other northern euro zone government bond yields nudged higher amid the lingering disappointment over last week’s ECB policy moves. Swiss yields climbed, too, as that also dampened expectations of another Swiss National Bank rate cut this month. [GVD/EUR]
Greek 10-year yields rose to their highest level in almost three months, meanwhile, as concerns about the country’s ability to stick to its reform program were stoked by critical comments on the IMF from Prime Minister Alexis Tsipras.
He accused the Washington-based global lender of making unrealistic demands both on Greece for tough reforms and on its euro zone partners for debt relief beyond what they can accept.
“The Fund must decide if it wants to compromise, if it will stay in the program,” Tsipras said. “If it does not want that compromise, it should say so publicly.”
Other than that it was all about what is expected to be the first post-financial crisis rise in U.S. interest rates on Dec. 16 for bond markets.
Federal funds futures contracts FFcm1 imply an 80 percent chance that the Fed will end seven years of near-zero interest rates at its December meeting and about even odds of a second rate rise by March.
Long-dated U.S. Treasury debt prices held firm after rallying on Monday as the drop in oil prices pointed to benign inflation, potentially tempering the Fed’s policy tightening path.
On the currencies front, action around the China trade data was brief with the Australian dollar settling to new intraday lows at $0.7224 AUD=D4 and receding further from a 3-1/2 month high of $0.7386 touched on Friday.
The euro was firm at $1.0856 EUR= following last week’s less-than-aggressive ECB stimulus and the offshore Chinese yuan CNH=D4 traded at a three-month low of 6.4930 per dollar despite another lower-than-expected fixing by China’s central bank.
Raj Shah has professional experience working for over a half a dozen years at financial firms such as Merrill Lynch and First Allied Securities Inc., ... <Read more about Raj Shah>