Oil spill leaves commodities spinning, safe-havens shine

LONDON, Sha’ban 9, 1438, May 5, 2017, SPA — A slump in oil prices to the lowest in almost six months rattled markets on Friday, prompting a rally in safe-haven bonds, the yen and gold and taking the shine off a record-breaking week for world stocks, Reuters reported.
Bourses flinched in both Asia and Europe and Wall Street saw a subdued start as investors, who had been expecting to spend the day mostly looking at U.S. jobs data – that came in strongly – and ahead to Sunday’s French election, were caught off guard.
Both Brent and U.S. crude fell more than 3 percent overnight amid record trading volumes on mounting concerns about global oversupply.
Things only fully stabilised when Saudi Arabia’s OPEC chief hit the wires in European hours, saying there was a growing consensus among oil pumping countries that they needed to continue to “rebalance” the market.
Brent clawed back to $48.40 a barrel almost two dollars better off than its overnight low, but the scars left it 6 percent lower than at the start of the week.
Big commodity price drops do not just have have an immediate impact on financial markets either.
As was seen during a slump between 2014 and 2016, they cause major headaches for countries that rely on their revenues. They also unleash deflationary forces, but can help energy-importing economies, firms and households by lowering their energy bills.
Oil has not been the only commodity that has suffered this week. Chinese iron ore futures fell almost 7 percent in Shanghai overnight after tumbling 8 percent on Thursday.
Mining giant Rio Tinto hit a six-month low, Glencore was set for its worst weekly loss in two months and copper miner Antofagasta since December.
The Canadian dollar, the Australian dollar and Russia’s rouble – some of the world’s most commodity- sensitive currencies – were all sent spinning, falling respectively to 14-month, four-month and seven-week lows.
They all fought back, though, after the Saudi OPEC governor’s comments to Reuters that: “A six-month extension (to production cuts) may be needed to rebalance the market, but the length of the extension is not firm yet.”
In calmer waters, the euro touched a six-month high of almost $1.10 ahead of France’s election, in which polls expect centrist Emmanuel Macron to convincingly beat right-wing, anti-euro rival Marine Le Pen.
The gap between French and German 10-year government borrowing costs also hit a six-month low and despite the dip on the day, European shares were heading for a healthy 1.2 percent rise for the week. World shares are up for a third week and hit a record high on Wednesday.
Better-than-expected U.S. non-farm payrolls data showed jobs growth rebounded sharply last month with 211,000 added and the national unemployment rate down to near a 10-year low at 4.4 percent.
The dollar and U.S. government bond yields barely budged though. Both had been nudged lower by the commodity market worries. It is set to be the fourth weekly fall on the trot for the greenback, now at its lowest since November.
The yen and gold rose in tandem as investors took refuge in safe havens, though the latter remained on track for its biggest weekly decline in nearly six months on bets that U.S. interest rates will rise again in the coming months.
Emerging markets were also caught in the commodities sell-off. The main emerging currencies were all on track for weekly losses and MSCI’s closely-followed EM stocks index hit a 10-day low.
China markets have also been wobbling in recent weeks but the commodity market woes have been the central focus.
Brent traded volumes on Thursday reached an all-time high of nearly 542,000 contracts, suggesting big betting hedge funds may have been ripping out long positions. (http://tmsnrt.rs/2oSQUu5). “It is now-or-never for oil bulls.”
17:06 LOCAL TIME 14:06 GMT