Stocks and commodity currencies floored by new oil plunge

MSCI’s 46-country All World stock index was down for the 10th day in the last 11 as Europe’s main markets fell 1.8-2.5 percent following heavy overnight selling in Asia..

This year’s slump has pushed the global index to its lowest level in 2-1/2 years. It is down more than 9 percent since the start of the month, but some individual markets have fared far worse.

Investors were still glued to the 20 percent rout in oil. Global benchmarks Brent and U.S. crude both bobbed back above $30 in early European trading [O/R], but the previous day’s break below the level for the first time since 2004 left nerves jangling.

Canada, one of the big global oil producers, saw its dollar dive as deep as C$1.4382 per U.S. dollar, its lowest level since April 2003.

There were also new gyrations in emerging market currencies. Adding to the risk-off sentiment, a gun and bomb attack rocked Jakarta, which helped send the rupiah down around 1 percent and stocks 1.7 percent.

“Perhaps $30 or just slightly below is acting as a little bit of a floor but, that being said, that’s a straw in a hay barn in terms of positivity,” said Ben le Brun, market analyst at OptionsXpress. “The rest of the news is decidedly negative.”

European investors were also waiting for the latest signals from the region’s two biggest central banks, the ECB and the Bank of England.

The latter was holding its first policy meeting of the year and sterling was hovering near a 5-1/2 year low as any thoughts of rate hikes continued to be pushed back amid the market turbulence and bets that inflation will stay heavily subdued.

The ECB, meanwhile, will publish the minutes of its December meeting, when it disappointed traders with a less powerful policy easing package than expected. They are due at 1230 GMT.

“We all hope … that what we’ve done is enough,” said a swing member of the Governing Council. “Given the oil price volatility, even if the 2018 forecast is below target, we don’t have to act.”

The euro rose to above $1.09 after the comments.

RATE EXPECTATIONS

Investors are becoming increasingly worried, though, that the latest oil slump and market rout is a signal that the U.S. economy will not be strong enough to withstand anything like the four rate hikes the Federal Reserve has suggested for this year.

Boston Fed President Eric Rosengren sounded a cautious tone overnight, saying global and U.S. economic growth may be slipping and could force the bank into a more gradual course of rate hikes than officials currently expect.

The benchmark 10-year U.S. Treasury yield plumbed its lowest levels since late October as investors sought safety in government debt. It last stood at 2.0734 percent as the equivalent German Bund yields fell back below 0.5 percent.

Undermined by lower U.S. yields, the dollar lost ground to its perceived safe-haven Japanese counterpart, though it had clawed most of it back and was last buying 117.90 yen.

With the commodity crunch showing no sign of relenting, copper fell to $4,330, its lowest since May 2009, compounding worries about the effect on demand of the fall in Chinese growth.

Japan’s Nikkei was Asia’s big loser. It shed 2.7 percent, as downbeat domestic data added to the gloom. The yield on the benchmark 10-year Japanese government bond also touched a fresh record low of 0.190 percent.

Japan’s core machinery orders fell 14.4 percent in November from the previous month, down for the first time in three months and marking a bigger decline than economists’ median estimate of a 7.9 percent drop.

China’s recently volatile main stock indexes reversed earlier losses, however, with the Shanghai Composite Index and the CSI300 index both closing up 2 percent after strong finishes.

Market participants continued to keep an eye on China’s yuan, which weakened even after the People’s Bank of China set its midpoint rate at 6.5616 per dollar prior to the market opening, firmer than the previous fix of 6.563.

The PBOC has held the line on its currency in the past few days, calming some fears of a sustained depreciation.