After the Dow Jones Industrials flirted with the key 18,000 level in the first week of December its been down hill all the way for the major stock market indices in the last week as investors have finally got jittery. The Dow Industrials finished the week at 17,280 down 4% on the week after a 315 point drop on Friday, the FTSE 100 fell a whopping 6.5% to finish at 6,297 after a 161 point slide on Friday, the Tokyo Nikkei 225 fell 3% to end at 17,371 and the S&P 500 dropped 3.5% to 2,002. The Dow suffered its being decline since September 2011 and the CBOE Vix index, the so called fear index, rose 5% to 21.72 on Friday, up 63% over just the past week.
Falling oil prices was a major factor in the decline, but the calling of a Presidential election in Greece and worries about Chinese growth didn’t help matters. The FTSE 100 was disproportionately hit given its heavy weighting of energy and commodity stocks including BP, Shell, BHP Billiton and Rio Tinto. Oil and gas companies make up nearly 15% of the FTSE 100, compared with an 8% weighting in the S&P 500.
WTI Crude fell to $57.5, after starting the week close to $65. Brent Crude dropped $6.65 over the week to $61.50 a 12 month and 5 year low and 46% down on the $115 level in June this year after the International Energy Agency cut crude oil demand forecasts back for 2015. With OPEC not planning to cut production any time soon, things are looking bleak for oil. At a meeting in Duabi, Suhail al-Mazrouei, energy minister of the United Arab Emirates and a high profile member of OPEC said “We are not going to change our minds because the prices went to $60, or to $40.” At below $60 even mature fields in the North Sea would be struggling to be economic, never mind non-conventional shale oil production in the United States. The International Energy Agency (IEA), expects world demand for oil in 2015 to hit 93.3 million bpd in total whilst the US based Energy Information Administration (EIA) cut its forecast to 92.8m bpd. Both below the key 100 million barrels per day level.
Early this week the Greek government decided to force a snap election after deadlock in parliament with fears that the left wing and anti-EU party Syriza could win and jeopardise Greece’s bailout program and potentially cause the exit of the country from the Eurozone. After months of relative stability in the country despite a plunge in GDP in recent years and 25% unemployment and with hopes that the country could be turning the corner economically after the government was successful in raising money from financial markets earlier this year, the fear is that the clock could be turned back to the dark days of the financial crisis of 2009. The news from Greece didn’t help market sentiment in the least.
With oil prices plunging and commodity prices weak (especially iron ore) some are questioning the strength of the global economy. This week BHP Billiton said that it expected steel production in 2015 to remain subdued, predominantly because of a slowdown in Chinese housing, which means that iron ore pricing isn’t going to rebound strongly in the face of growing supply. The Australian government predicts a price of around $60 a tonne, compared with well over $100 at the end of 2013. The price dropped to $68 a tonne last month compared $136 a tonne a year ago and is now trading at around $70.
As the end of the year looms, where will the markets finish 2014? It may well be that the first week of December marks the high point for US markets but its been a good year for the S&P 500 with the index up over 8% despite the recent decline (though the FTSE 100 is down 6% year to date) . Certainly a little fear is creeping into the thinking of market participants and 2015 could be a tough year as the US Federal Reserve’s asset purchase programme no longer helps to back stop sentiment. How much lower could energy stocks go if oil does drop towards $50 a barrel?
Contrarian Investor UK
IMPORTANT: The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.
by contrarianuk
Markets suddenly get the jitters
Dec 14, 2014 at 4:47 pm in Market Commentary by contrarianuk
After the Dow Jones Industrials flirted with the key 18,000 level in the first week of December its been down hill all the way for the major stock market indices in the last week as investors have finally got jittery. The Dow Industrials finished the week at 17,280 down 4% on the week after a 315 point drop on Friday, the FTSE 100 fell a whopping 6.5% to finish at 6,297 after a 161 point slide on Friday, the Tokyo Nikkei 225 fell 3% to end at 17,371 and the S&P 500 dropped 3.5% to 2,002. The Dow suffered its being decline since September 2011 and the CBOE Vix index, the so called fear index, rose 5% to 21.72 on Friday, up 63% over just the past week.
Falling oil prices was a major factor in the decline, but the calling of a Presidential election in Greece and worries about Chinese growth didn’t help matters. The FTSE 100 was disproportionately hit given its heavy weighting of energy and commodity stocks including BP, Shell, BHP Billiton and Rio Tinto. Oil and gas companies make up nearly 15% of the FTSE 100, compared with an 8% weighting in the S&P 500.
WTI Crude fell to $57.5, after starting the week close to $65. Brent Crude dropped $6.65 over the week to $61.50 a 12 month and 5 year low and 46% down on the $115 level in June this year after the International Energy Agency cut crude oil demand forecasts back for 2015. With OPEC not planning to cut production any time soon, things are looking bleak for oil. At a meeting in Duabi, Suhail al-Mazrouei, energy minister of the United Arab Emirates and a high profile member of OPEC said “We are not going to change our minds because the prices went to $60, or to $40.” At below $60 even mature fields in the North Sea would be struggling to be economic, never mind non-conventional shale oil production in the United States. The International Energy Agency (IEA), expects world demand for oil in 2015 to hit 93.3 million bpd in total whilst the US based Energy Information Administration (EIA) cut its forecast to 92.8m bpd. Both below the key 100 million barrels per day level.
Early this week the Greek government decided to force a snap election after deadlock in parliament with fears that the left wing and anti-EU party Syriza could win and jeopardise Greece’s bailout program and potentially cause the exit of the country from the Eurozone. After months of relative stability in the country despite a plunge in GDP in recent years and 25% unemployment and with hopes that the country could be turning the corner economically after the government was successful in raising money from financial markets earlier this year, the fear is that the clock could be turned back to the dark days of the financial crisis of 2009. The news from Greece didn’t help market sentiment in the least.
With oil prices plunging and commodity prices weak (especially iron ore) some are questioning the strength of the global economy. This week BHP Billiton said that it expected steel production in 2015 to remain subdued, predominantly because of a slowdown in Chinese housing, which means that iron ore pricing isn’t going to rebound strongly in the face of growing supply. The Australian government predicts a price of around $60 a tonne, compared with well over $100 at the end of 2013. The price dropped to $68 a tonne last month compared $136 a tonne a year ago and is now trading at around $70.
As the end of the year looms, where will the markets finish 2014? It may well be that the first week of December marks the high point for US markets but its been a good year for the S&P 500 with the index up over 8% despite the recent decline (though the FTSE 100 is down 6% year to date) . Certainly a little fear is creeping into the thinking of market participants and 2015 could be a tough year as the US Federal Reserve’s asset purchase programme no longer helps to back stop sentiment. How much lower could energy stocks go if oil does drop towards $50 a barrel?
Contrarian Investor UK
IMPORTANT: The posts I make are in no way meant as investment suggestions or recommendations to any visitors to the site. They are simply my views, personal reflections and analysis on the markets. Anyone who wishes to spread bet or buy stocks should rely on their own due diligence and common sense before placing any spread trade.