Global equity markets are entering the New Year in the doldrums and are spooking traders and investors alike, closely mirroring the decline in manufacturing growth in both the U.S. and China amid ongoing trade tensions. Last Thursday, all three major U.S. stock indexes plunged by 2 percent after a dire revenue warning from Apple heightened fears of a global economic slowdown.
The development comes a day after Apple chief executive Tim Cook wrote in a letter to investors that the company had not foreseen the extent of China’s economic deceleration, which was exacerbated by U.S.-China trade tensions. The company’s shares dropped 10 percent after the disclosure. Apple’s problems are also impacting the overall technology sector. S&P Technology companies, meanwhile, dropped 5.1 percent yesterday, its biggest drop since August 2011.
Unholy cocktail of market woes
Apple’s disclosure capped a worrisome month for U.S. equity markets which ended December seeing an exodus of funds for safer havens. Investors pulled $98 billion from U.S. based stocks last month, in what shows a growing lack of confidence in economic growth, as well as worries over the Federal Reserve’s recent policy of increasing interest rates. Many claim that the Fed has been too aggressive in tightening monetary supply coming at the same time that economic growth is starting to sputter both at home and abroad.
To put December’s exodus from equity markets into perspective, it tops the prior record from October 2008 at the on-start of the global financial crisis when investors took out $48.8 billion when then-President George W. Bush tried to stop banks from failing.
The U.S. and China are also entering what could be called round two of its existing trade war, kicked off mid-last year when President Trump slapped fresh tariffs on Chinese goods. To date, a 10 percent tariff is in still place on $200 billion worth of Chinese goods entering the U.S., while that figure could increase to 25 percent with another $267 billion worth of additional Chinese goods levied if the two sides can’t read a trade deal by their self-imposed March 2 deadline.
Oil price link
The ongoing trade war also continues to put downward pressure on oil prices amid concern over oil demand growth not just in China, but globally. The so-called OPEC+ group of producers, that includes production heavyweights Saudi Arabia and Russia, agreed last month to try to soak up extra oil supply and prop up oil prices which have dropped nearly 40 percent since reaching four-year highs in October. Related: Why Goldman Just Drastically Slashed Its Oil Price Prediction
The group, starting today, will trim production by 1.2 million b/d, for six months, with a review to be held in April to consider keeping the deal in place for another six-month period. However, global oil markets have largely discounted the cut so far, since it appears to not be enough to offset record production levels by the U.S., Russia and Saudi Arabia that have been producing oil at reactant levels, with both the U.S. and Russia breaching the 11 million b/d production point.
However, Saudi Arabia ended last year already seemingly taking early steps to drain down global oil supply. In December, OPEC oil supply fell by the largest amount in nearly two years. Most of the cutback came from Saudi Arabia. OPEC pumped some 32.68 million b/d down 460,000 b/d from November and the largest month-on-month drop since January 2017 when the first OPEC+ oil production deal was first put in place to drain down a then-oil supply glut that had seen prices plunge from $100 per barrel in mid 2014 to under $30 per barrel by January 2016.
The Saudi early production cut last month provided temporary support to oil prices, with both global benchmark Brent crude futures and U.S.-benchmark, West Texas Intermediate (WTI) futures gaining on Tuesday, with WTI futures up $1.05, or 2.16 percent, to $49.57 a barrel. Brent crude futures were up by $1.08, or 1.88 percent, at $58.41 a barrel by 12:13 p.m. eastern time.
By Tim Daiss for Oilprice.com
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