US crude oil dropped below $50 a barrel for the first time in five and a half years, sending energy stocks into a tailspin and fuelling a broader sell-off on Wall Street that spilled into Asia as fears grew of a global economic slowdown.
The dollar strengthened against a basket of rivals to a nine-year high, while the euro sank to a nine-year low versus the US currency.
The dollar strengthened against a basket of rivals to a nine-year high, while the euro sank to a nine-year low versus the US currency.
The nervous start to the year for financial markets reflected mounting fears that the world was facing the twin threat of slower growth and deflation, combined with worries about the impending Greek elections and the speed of the oil price fall.
The nervous mood in the US and Europe spread to Asia on Tuesday morning, with Japan’s Nikkei 225 falling 1.8 per cent in the first minute of trading and South Korea’s Kospi Composite losing 1.2 per cent.
In the US, investors sought long-dated government bonds as insurance against further downward pressure on inflation and global growth prospects with the US 30-year Treasury bond at its lowest yield since August 2012.
The slump in oil prices helped drag German consumer inflation down to 0.1 per cent in the year to December.
As deflationary pressures intensify in the eurozone, Mario Draghi, the head of the European Central Bank is expected to launch a programme of government bond-buying as a means of boosting inflation expectations.
“The deflationary fear is growing, we are seeing slower global trade, oil and industrial commodities keep falling and the eurozone faces a major challenge in undertaking aggressive easing,” said John Brady, managing director at RJ O’Brien.
The sell-off in stocks had gathered pace on Monday, pushing the Eurofirst 300 index down 2.3 per cent, the UK FTSE 100 lower by 2 per cent while the S&P 500 closed 1.8 per cent lower.
Across share markets, oil companies led losses as BP tumbled 5.1 per cent, Royal Dutch Shell declined 4.8 per cent and France’s Total 6 per cent, while Eni of Italy was down 8.4 per cent. In New York, ExxonMobil was 2.7 per cent lower and Chevron 4 per cent weaker.
This will put the focus on the sector in China, where stock markets open at 9.30am, after a strong rally on Monday that saw energy stocks shoot up nearly 10 per cent. Futures suggest Hong Kong’s Hang Seng Index will fall 1 per cent when it opens.
Both Brent, the international oil benchmark, and West Texas Intermediate, the main US crude, hit levels last seen in the spring of 2009. They have now fallen more than 50 per cent since mid-June.
The nervous mood in the US and Europe spread to Asia on Tuesday morning, with Japan’s Nikkei 225 falling 1.8 per cent in the first minute of trading and South Korea’s Kospi Composite losing 1.2 per cent.
In the US, investors sought long-dated government bonds as insurance against further downward pressure on inflation and global growth prospects with the US 30-year Treasury bond at its lowest yield since August 2012.
The slump in oil prices helped drag German consumer inflation down to 0.1 per cent in the year to December.
As deflationary pressures intensify in the eurozone, Mario Draghi, the head of the European Central Bank is expected to launch a programme of government bond-buying as a means of boosting inflation expectations.
“The deflationary fear is growing, we are seeing slower global trade, oil and industrial commodities keep falling and the eurozone faces a major challenge in undertaking aggressive easing,” said John Brady, managing director at RJ O’Brien.
The sell-off in stocks had gathered pace on Monday, pushing the Eurofirst 300 index down 2.3 per cent, the UK FTSE 100 lower by 2 per cent while the S&P 500 closed 1.8 per cent lower.
Across share markets, oil companies led losses as BP tumbled 5.1 per cent, Royal Dutch Shell declined 4.8 per cent and France’s Total 6 per cent, while Eni of Italy was down 8.4 per cent. In New York, ExxonMobil was 2.7 per cent lower and Chevron 4 per cent weaker.
This will put the focus on the sector in China, where stock markets open at 9.30am, after a strong rally on Monday that saw energy stocks shoot up nearly 10 per cent. Futures suggest Hong Kong’s Hang Seng Index will fall 1 per cent when it opens.
Both Brent, the international oil benchmark, and West Texas Intermediate, the main US crude, hit levels last seen in the spring of 2009. They have now fallen more than 50 per cent since mid-June.
“We may not quite have reached a price level sufficient enough to clear the market surplus altogether,” said David Fyfe, head of research at Gunvor, a Geneva-based trading house. “Prices may weaken a bit further.”
Brent hit a low of $52.66 a barrel in New York afternoon trading before closing at $53.11 a barrel, down $3.31. Meanwhile WTI slid $2.65 to $50.04 a barrel, having earlier breached $50 a barrel.
The euro dropped to $1.1864 in early trading, surpassing even the lows reached during the eurozone debt crisis. The decline followed a story in Der Spiegel, the German news magazine, that Chancellor Angela Merkel was prepared to abandon her commitment to keeping Greece in the currency bloc should the anti-austerity Syriza party take power in this month’s general election and reverse the country’s reform programme.
Germany denied the report and insisted that it was working on the assumption that Athens would continue to fulfil its obligations to international creditors.
Market analysts predict further volatility in European assets this month ahead of the ECB’s first monetary policy meeting of the year and the Greek elections.
“There has been a reawakening of ‘Grexit’ fears,” said Alan Ruskin, a foreign exchange strategist at Deutsche Bank. “Grexit uncertainty could easily persist for the next month, weighing on the euro.”
Others say the uncertainty could last far longer. “2015 is a make-or-break year for Europe,” said Alberto Gallo of Royal Bank of Scotland
Brent hit a low of $52.66 a barrel in New York afternoon trading before closing at $53.11 a barrel, down $3.31. Meanwhile WTI slid $2.65 to $50.04 a barrel, having earlier breached $50 a barrel.
The euro dropped to $1.1864 in early trading, surpassing even the lows reached during the eurozone debt crisis. The decline followed a story in Der Spiegel, the German news magazine, that Chancellor Angela Merkel was prepared to abandon her commitment to keeping Greece in the currency bloc should the anti-austerity Syriza party take power in this month’s general election and reverse the country’s reform programme.
Germany denied the report and insisted that it was working on the assumption that Athens would continue to fulfil its obligations to international creditors.
Market analysts predict further volatility in European assets this month ahead of the ECB’s first monetary policy meeting of the year and the Greek elections.
“There has been a reawakening of ‘Grexit’ fears,” said Alan Ruskin, a foreign exchange strategist at Deutsche Bank. “Grexit uncertainty could easily persist for the next month, weighing on the euro.”
Others say the uncertainty could last far longer. “2015 is a make-or-break year for Europe,” said Alberto Gallo of Royal Bank of Scotland
