World stocks dipped after a three-day run of gains and emerging markets were back under pressure on Tuesday, as a sharp drop in oil prices following lacklustre economic data sparked renewed nerves.
Oil struggled to steady, having fallen as much as 7 per cent on Monday, and the glum macro mood sweeping back though markets saw European shares follow Asia deep into the red.
Britain’s FTSE 100, Germany’s DAX and France’s CAC 40 were down 1.4-1.7 per cent as BP’s biggest loss in 20 years and plans to cut thousands more jobs dovetailed with rating cuts by S&P for Shell and BHP Billiton to underscore commodity woes.
Banks were hit too, with Swiss bank UBS slumping as much 8 per cent after signs its wealthy customers were pulling money out.
In the currency markets, waning risk appetite nudged Japan’s yen and the euro up against the dollar. But the greenback was squeezing the main emerging markets, up as much as 1 per cent against the rouble, the rand, Mexico’s peso and Malaysia’s ringgit.
The Australian dollar also slipped after the country’s central bank held rates but left the door open to further easing after last week’s surprise move by Japan into negative interest rates.
“I don’t think the market has much of a clue on what to focus on,’’ said John Hardy head of FX strategy.
‘It doesn”t seem too convinced with the narrative of hooray for central bank liquidity again, and the oil price going down and whole reserve destruction theme is bad for risk appetite.’’
The lure of relative safety saw gains for benchmark US and European government bonds as Mario Draghi’s reconfirmation on Monday that the ECB will ‘review’ its monetary policy next month gave yields an extra kick lower.
Concern over oil still dominated. Brent and US crude oil had tentatively steadied at $33.70 and $31.05 a barrel, having lost as much as 7 per cent overnight.
The pressure remains after weak economic data from China, Europe and the United States, a US forecast for mild weather and doubts that big oil producing countries would agree to cut the global supply glut.
Oil production in Russia hit a post-Soviet high in January, reaching an average of 10.88 million barrels per day (bpd), data from its energy ministry showed.
“(Prices) have just come back to reality a bit, although they are holding water above $30 a barrel,’’ said Ben Le Brun, market analyst at Sydney’s OptionsXpress, pointing to concern over rising oil supplies and weaker economic data.
Aussie bashing
Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan lost 1.2 per cent. Falls almost everywhere except China, which saw a 2 per cent bounce, drove the index lower.
Japan’s Nikkei ended down 0.6 percent as investors locked in profits after two straight days of big gains following the Bank of Japan’s decision to introduce negative interest rates late last week.
“In a bear market, investors would use any rebound to cut equity holdings, and that has been the trading pattern recently,’’ said Zeng Yan, an analyst at Zhongtai Securities, referring mainly to Chinese markets.
“There are no changes in fundamentals: yuan depreciation concerns are still there, the economy remains in bad shape, and market liquidity tends to be tight.’’
The Australian dollar was still down about 0.8 per cent at $0.7052 in European trading, though it held above its recent seven-year trough of $0.6827.
As expected, the Reserve Bank of Australia held interest rates steady at a record low of 2.0 per cent. Although the bank was hopeful on growth prospects, it reiterated that there is scope for a further cut if needed.
Markets appeared little fazed by Iowa’s primary elections for the US presidential nomination. Among Republicans, US Senator Ted Cruz beat billionaire Donald Trump and for the Democrats, former Secretary of State Hillary Clinton was in a virtual tie with rival Bernie Sanders.
S&P 500 e-mini futures pointed to a 0.8 per cent drop for Wall Street later, though that was mostly tracking oil prices and the falls in Europe and Asia.