European stocks reverse losses; oil hits 11-year low

20 Jan 2016 | Author: | No comments yet »

Asian equities defy Wall Street’s fall, while strong dollar hammers weak oil.

Brent crude oil prices fell to levels last seen in 2004 on Monday, dropping below the lows hit during the 2008 financial crisis on renewed worries over a global oil glut, with production around the world remaining at or near record highs and new supplies looming from Iran and the United States. “I think what we’re seeing is an overhang of weak sentiment, excess supply, we’ve seen a number of bearish signals out in the oil market…all of these adding to these to the sense of a global glut in oil,” John Bilton, global strategist at JPMorgan Asset Management, told CNBC on Monday. Asian share markets got off to a lacklustre start on Monday following a dive on Wall Street, though losses were limited by a general lack of investor interest in a holiday-heavy week. The Chinese government said it was to focus on “supply-side” structural reform, keep monetary and fiscal policy accommodative, cut tax next year for companies and push to reduce industrial overcapacity, according to Dow Jones, citing a Chinese official.

The market took a hit late Friday after the Bank of Japan announced some changes to its massive stimulus programme but stopped short of expanding the net amount of assets it buys, disappointing some who had hoped for a more aggressive move. The Dow Jones industrial average ended Friday 2.1% weaker while the Standard & Poor’s 500 index lost 1.78% and the Nasdaq composite index fell 1.59%. The vote heralded weeks of talks to form a coalition government, with neither Prime Minister Mariano Rajoy’s conservatives nor left-wing parties winning a clear mandate to govern, Reuters reported. “It rather seems that the troubles for the euro area are never ending and the election in Spain over the weekend has just reminded us of this element once again,” Naeem Aslam, chief market analyst at AvaTrade, said in a note on Monday. Longer-dated Treasuries have been particularly popular as investors wager the Federal Reserve is well ahead of the curve on inflation after last week’s rate hike. In individual stock news, Swedish telecom equipment maker Ericsson was one of the top performers after it said it had signed a patent license agreement with Apple that will end ongoing patent infringement issues between the companies.

The global background is also one of disinflation given the weakness in oil and other commodity prices and the mounting spare capacity in major exporters such as China. The resulting rally in longer-dated Treasuries has flattened the yield curve with the gap between two-year and 10-year paper shrinking to 123 basis points, the smallest since early February.

A flatter curve is bad news for bank profits since they essentially make money from borrowing short and lending long, and could be one reason U.S. bank stocks fell hard late last week.

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