Oil rallies as weak data weigh on stocks

Monday 19:25 GMT. Oil prices managed to stage a sharp rebound but global equities began the month on a cautious note as participants digested further worrying news on the health of the Chinese and eurozone manufacturing sectors.

Brent crude initially sank to $67.53 a barrel, its lowest in five years, as the fallout from Opec's failure to cut production levels last week continued to reverberate. But the international crude benchmark subsequently rallied back to $72.05, up $1.90 from Friday's settlement.

That helped the rouble trim an early slide that took it to a record low against the dollar, although the Russian currency was still some 2.5 per cent weaker on the day. The Australian dollar touched a four-year low against its US namesake before recovering.

Meanwhile, other commodities also saw very volatile trading conditions. Gold fell as low as $1,143 an ounce after Swiss voters rejected a proposal that the country's central bank hold 20 per cent of its assets in the metal. But it too enjoyed a remarkable bounce as it then reached $1,216, a gain of $49, or 4.2 per cent, on the day.

Copper touched its lowest in more than four years before rebounding to close 1.5 per cent higher in London.

"The uptick in volatility on commodity and foreign exchange markets is not something that markets like," said Divyang Shah, global strategist at IFR Markets.

"The price action on equities seems to have shifted to a more cautious tone from the prior optimism that lower oil prices will be good for growth. Central bank outlooks will undergo a more significant change, with lower inflation likely to cement European Central Bank quantitative easing expectations."

Recent comments from ECB officials have led many in the markets to expect further stimulus measures to bolster eurozone growth and halt a recent fall in inflation.

Such expectations maintained downward pressure on eurozone government bond yields, with Spain's 10-year falling 8 basis points to a record 1.85 per cent, while Italy's shed 2bp to 2.01 per cent. The German 10-year Bund yield touched a record low of 0.69 per cent.

Fresh evidence of the fragile state of the region's economy came from the final reading of the November eurozone manufacturing purchasing managers' index. This was revised to 50.1 from the initial estimate of 50.4 - only just above the 50 level that nominally divides contraction from expansion, and down from 50.6 in October.

Worryingly, manufacturing activity shrank in Germany, France and Italy.

"It is clear that eurozone manufacturers generally are continuing to find life very difficult despite the help coming from a markedly weaker euro and very low oil prices," said Howard Archer, chief European economist at IHS Global Insight.

Ακολουθήστε το Euro2day.gr στο Google News!Παρακολουθήστε τις εξελίξεις με την υπογραφη εγκυρότητας του Euro2day.gr

FOLLOW USΑκολουθήστε τη σελίδα του Euro2day.gr στο Linkedin

The data followed news that China's official Chinese manufacturing PMI had fallen to 50.3 in November from 50.8, the lowest reading in eight months. The final reading of the equivalent index from HSBC/Markit came in at 50.0, down from 50.4 in October and unchanged from the "flash" estimate.

"While it is too early to look for the impact of last month's rate cut in today's data, it seems unlikely that it will be enough to prevent a further slide in growth," said Julian Evans-Pritchard at Capital Economics.

"The recent cut in the benchmark rates will do little to boost economic activity unless followed by a loosening of quantitative controls on lending, which policy makers will remain cautious about given concerns over mounting credit risk."

There was better news on factory activity from the US, where the Institute for Supply Management's manufacturing index edged down to 58.7 in November from 59.0, a smaller drop than expected. The details of the report were encouraging, with both new orders and export orders rising and the prices-paid component falling.

"Given the broad strength in the report it suggests that the manufacturing sector has very strong momentum with the current level of the ISM index at levels historically consistent with GDP growth in excess of 4 per cent," said James Knightley, an economist at ING.

But the US data could not prevent Wall Street from easing back, with the S&P 500 equity index down 0.8 per cent at 2,051 by midday in New York. The mood was not helped by the National Retail Federation's estimate that US consumers had cut spending by 11 per cent over the post-Thanksgiving weekend.

In Europe, the FTSE Eurofirst 300 fell 0.5 per cent while the Hang Seng index in Hong Kong tumbled 2.6 per cent following a night of violent clashes between police and pro-democracy protesters.

The Nikkei 225 in Tokyo rose 0.8 per cent. After the Japanese market closed, Moody's downgraded the country's credit rating, sparking sharp swings in the yen.

The dollar was last quoted at Y118.24, down 0.3 per cent on the day, after trading between Y117.88 and a seven-year high of Y119.13.

© The Financial Times Limited 2014. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation