Commodities sell-off takes intensifying toll on stock markets – Financial Times

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Wednesday 15.20 GMT

What you need to know

  • Trend for weaker Chinese data hits commodities markets
  • Decline of 1% for Brent crude hurts energy stocks
  • Miners hit by weaker metals prices
  • New York joins sell-off after Europe and Asia falls
  • Dollar continues to drift lower after consumer price inflation data meets forecasts

Leading quote

“Chinese economic data are contributing to some slippage in commodity prices, and especially oil prices, says Neil MacKinnon at VTB Capital.

“The markets are also keeping an eye on what happens to [US] inflation. The current set of interest rate projections from the Federal Reserve looks for three rate hikes of 25 basis points through 2018, which is above the level of what money markets are projecting. An upside inflation risk is the main vulnerability for markets.”

Hot topic

Concern about slowing growth in China and an outlook for rising oil supply is hitting commodities prices and energy stocks around the world, drawing equities indices further away from their recent highs.

The S&P 500 is down 0.6 per cent at 2,563, with the energy sector down 1.1 per cent and overall losses offset by demand for defensive stocks and dividend payers.

The CBOE Vix index of implied equity volatility — watched as a gauge of broad stock market stress — was above 13 and heading for its highest close since August.

Brent crude, the international oil marker, is down 1 per cent at $61.59, while West Texas Intermediate is 1.1 per cent lower at $55.11. The Euro Stoxx oil and gas index is down 1.6 per cent, with the wider Euro Stoxx 600 down 0.7 per cent overall.

The declines come after the International Energy Agency predicted strong growth for US shale oil production. The selling takes Brent down from its recent intraday high of $64.65, which came as investors tracked a political crackdown in Saudi Arabia.

Meanwhile, Chinese futures contracts for iron ore fell by almost 5 per cent, knocking shares in metals producers. The pressure on metals prices tracks official figures for growth in fixed-asset investment, retail growth and industrial production in China, which all came in below expectations this week.

The Euro Stoxx mining index is down 2 per cent, off intraday lows that took it more than 3 per cent lower. Some of the biggest fallers on London’s resource-heavy FTSE 100 come from the mining sector, with shares in Glencore down 2.4 per cent.

Overall, the main London index is down 0.6 per cent, with its oil majors also hit. BP is down 1.6 per cent and Royal Dutch Shell is 1.5 per cent weaker.

Shares in state-owned Chinese oil group PetroChina fell 2.4 per cent and China Petroleum lost 2.1 per cent. France’s Total is 1.3 per cent weaker and Italy’s ENI is down 2.1 per cent.

Equities

The Xetra Dax 30 in Frankfurt is down 0.9 per cent, with the CAC 40 in Paris 0.8 per cent weaker.

Tokyo equities fell 2 per cent after a preliminary reading on third-quarter gross domestic product showed growth slowing. The energy segment was the hardest-hit, in line with the wider trading pattern across global markets.

Hong Kong’s Hang Seng lost 1 per cent.

Forex and fixed income

The dollar index is down 0.1 per cent at 93.70. US consumer price inflation data met forecasts, showing a headline 2 per cent rise year-on-year, offering little sign that markets could have to re-evaluate their expectations on the speed of the Federal Reserve’s rate tightening cycle.

The euro is up 0.1 per cent at $1.1809, extending gains driven by robust German economic growth data for the third quarter, and benefiting from a trend for a weaker dollar.

The yen is 0.5 per cent stronger at to ¥112.94 per dollar as equity benchmarks in Tokyo fell.

Stock market losses are helping bolster sovereign bonds, driving down yields. The yield on 10-year US Treasuries is 3 basis point lower at 2.35 per cent. German 10-year Bund yields are down 3bp at 0.37 per cent.

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