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Market Overview:  Global stocks fall as oil decline resumes

US stocks closed sharply lower on Monday as oil prices resumed the decline after Friday’s rebound. The dollar weakened, live dollar index data indicate the ICE US Dollar Index, a measure of the dollar’s value against a basket of six major currencies, was down 0.2% to 99.369. The Dow Jones Industrial Average ended 1.3% lower at 15885.22. Caterpillar was the worst performer among the Dow components, falling 5%. The S&P 500 lost 1.6% with all 10 main finishing in the red led by energy and materials stocks, down 4.52% and 3.26% respectively. Shares of Exxon Mobil sank 3.4%, Chevron dropped 3.2%. The continued slump in stock markets after both stock market indexes reversed the first weekly gains from previous two sessions’ rallies has spurred concerns about possible recession in US. JP Morgan analysts warned that the risk of economic downturn is not adequately priced in, pointing that forward price-to-earnings ratios are still higher than they usually are during a recession. At the same time Goldman Sachs analysts note that the risks of economic slowdown are limited and they expect a 2% GDP growth this year. Today Federal Reserve’s two-day policy meeting begins, and investors will be watching closely for the central bank’s assessment of US and global economy. At 15:00 CET today November Case-Shiller Composite-20 Home Price Index will be released. The tentative outlook is positive. At 15:45 CET January Flash Services PMI will be published by Markit. And at 16:00 CET January Consumer Confidence index will be released by Consumer Board. The tentative outlook is positive.

European stocks retreated on Monday as sliding oil prices provided no support for sustained investor optimism. The euro strengthened against the dollar despite a disappointing reading of Germany’s Ifo business sentiment index for January. The Stoxx Europe 600 closed down 0. 6% erasing early gains. Germany’s DAX 30 fell 0.3% to 9,736.15, France’s CAC 40 and UK’s FTSE 100 indexes dropped 0.4% and 0.6% respectively. Energy shares were hit hard as crude-oil prices gave back last week’s gains. Deep-water drilling company Seadrill Ltd. sank 8.9%, Norway’s Statoil dropped 3% and BP lost 0.7%. According to Ifo Institute’s survey business sentiment among Germany’s manufacturers fell to a 12-month low due to a poorer export outlook. The unexpected deterioration of business sentiment of euro-zone’s largest economy increases the likelihood of further stimulus by the European Central Bank in spring. Today at 12:45 CET Bank of England Governor Carney will testify on financial stability in London. Tomorrow at 8:00 CET February Gfk Consumer Confidence Index will be released in Germany. No important economic data are expected today in euro-zone.

Nikkei fell 2.4% today as continued slide in oil prices spurred concerns about global slowdown and yen strengthened on increased safe haven demand. Asian shares were lower today and China’s stocks fell sharply after renewed selloff, the CSI300 index of the largest listed companies in Shanghai and Shenzhen exchanges fell 6.0%.

Oil futures prices continued the decline today, reversing the gains from rebound that started last week as falling freight data from China added to concerns about global economic slowdown. China’s rail freight volume dropped 11.9% in 2015 from a year ago after a 3.9% decline in 2014. At the same time Iraq may raise output further this year, and Saudi national oil company Aramco is continuing to invest in oil and gas production capacity despite low prices. These developments point to expected lower demand growth for crude oil while additional supply will add to existing global glut.

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