Oil plunges to five-and-a-half-year low, Asian shares on defensive

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SHAFAQNA – Oil prices sank more than two percent to 5 1/2-year lows early on Monday on concerns about a supply glut and slower global growth, feeding fears for energy and commodities producers and exporters.

Investors were nervous after U.S. shares posted their biggest weekly fall in 2 1/2-years last week on losses led by energy sector, and as they expect the U.S. Federal Reserve to hint this week it is getting closer to raising interest rates.

U.S. crude futures fell more than 2.5 percent at one point to as low as $56.25 per barrel CLc1 in quiet early Monday Asian trade, showing no sign of life even after a fall of almost 50 percent from the June peak.

The world’s energy watchdog late last week forecast even lower prices next year on weaker demand and increased supply, sparking a fresh waving of selling.

Oil’s relentless slide pounded energy stocks and currencies exposed to crude exports on Friday, dousing the appetite for riskier assets.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.5 percent to their lowest level since March in early trade as resource-heavy Australian shares .AXJO fell 1.0 percent.

Japan’s Nikkei share average .N225 fell 0.7 percent, drawing little momentum from Japanese Prime Minister Shinzo Abe’s big election victory, which was a boost for his reflationary economic policies.

Energy-exporting emerging market currencies were strained, with the Brazilian currency hitting 9 1/2-year low BRL= and the Russian rouble hitting all-time low RUBUTSTN=MCX.

The Australian dollar dipped 0.2 percent to $0.8215 AUD=D4, ticking down near its 4 1/2-year low of $0.8204 hit last week.

The currency has so far seen limited impact from a hostage incident linked to Islamic militants. Police have locked down the Australian central bank and the heart of Sydney’s financial district.

Falls in risk asset prices are pushing investors into the safety of government debt and other traditional safe havens such as the yen.

The dollar fell to as low as 117.78 yen JPY=, edging near two-week low of a 117.445 hit last week, though the yen cut gains after the Bank of Japan’s tankan corporate sentiment survey showed business sentiment at big manufacturers declined in December. It dollar last stood at 118.50, down 0.3 percent.

The dollar’s index against a basket of six other major currencies slipped about 0.2 percent to 88.169, moving further away from a 5 1/2-year high of 89.550 hit a week ago.

“The risk-off sentiment may support the yen against the dollar in the next couple of days, though I do think the market will become bullish on the dollar after the Fed’s meeting,” said Osao Iizuka, chief dealer at Sumitomo Mitsui Trust Bank.

U.S. Treasuries also gained, with the 10-year yield slipping to two-month low of 2.071 percent US10YT=RR.

Still, improving U.S. economic data has added to bets that the Federal Reserve is moving closer to raising interest rates next year.

Many investors expect that the U.S. central bank may change its vow to keep interest rates near zero for a “considerable time” when it meets for a two-day policy meeting starting on Tuesday.

Source : Reuters.com

 

 

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