U.S. stocks fall on coattails of plunging oil; Dow drops 1.79%
by Investing.com Staff, Investing.com
Falling oil prices slammed U.S. stocks on Friday by stoking concerns that assets in general may be overvalued in wake of years of ultra-loose monetary policy, with
disappointing U.S. and Chinese data adding to the day’s selloff.
At the close of U.S. trading, the Dow Jones Industrial Average index fell 1.79%, the S&P 500 index fell 1.62%, while the Nasdaq Composite index fell 1.16%.
The S&P 500 VIX index, which measures the outlook for market volatility, was up 4.98% at 21.08.
Oil prices have fallen in recent months on concerns that supply far outstrips demand, and a recent OPEC decision to leave output unchanged has exacerbated losses.
Don’t expect the supply glut to abate anytime soon, the International Energy Agency said in its December report released earlier Friday, as more oil is still in the global pipeline.
“Barring a disorderly production response, it may well take some time for supply and demand to respond to the price rout,” the IEA said in its report.
“When it comes to supply, lower oil prices are already slashing producers’ spending, but this is more likely to affect medium- and long-term output than short-term supplies. So long is the lead of oil projects that price swings can take time to work their way through to supply. Projects that have already been funded will for the most part go on.”
The IEA also said it had cut its 2015 global oil demand growth forecast by 230,000 barrels per day to 0.9 million bpd, which hammered stocks by stoking concerns headwinds may be cooling the global economy at a time when many assets may be overvalued due to years of low interest rates and loose monetary policies.
Meanwhile in the U.S., mixed data sent investors heading for the exit door.
The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to a nearly eight-year high of 93.8 this month from 88.8 in November. Analysts had expected the index to rise to 89.7 in December.
However, the U.S. Department of Labor reported that the U.S. producer price index fell 0.2% last month, surpassing expectations for a 0.1% downtick, after rising 0.2% in October.
Core producer price inflation, which excludes food, energy and trade, was flat in November, confounding expectations for a 0.1% rise, after an increase of 0.4% the previous month.
Elsewhere, China reported that its industrial production rose 7.2% in November, missing expectations for an increase of 7.5%, after a 7.7% gain in October, which added to Friday’s losses.
Leading Dow Jones Industrial Average performers included Wal-Mart Stores Inc(NYSE:WMT), down 0.02%, Walt Disney Company (NYSE:DIS), which was down 0.28%, and Microsoft Corporation (NASDAQ:MSFT), down 0.32%.
The Dow Jones Industrial Average’s worst performers included International Business Machines (NYSE:IBM), down 3.53%, DuPont (NYSE:DD), down 3.18%, and Exxon Mobil Corporation (NYSE:XOM), down 2.91%.
European indices, meanwhile, ended the day lower.
After the close of European trade, the Euro Stoxx 50 fell 2.91%, France’s CAC 40 fell 2.77%, while Germany’s DAX 30 fell 2.72%. Meanwhile, in the U.K. the FTSE 100 fell 2.49%.
The dollar traded mixed to lower against most major currencies on Friday after wholesale pricing data came in weaker than expected, though and upbeat report on consumer sentiment
In U.S. trading on Friday, EUR/USD was up 0.37% at 1.2453.
The dollar has rallied against the euro and other currencies in recent months on expectations for U.S. monetary policy to grow less accommodative while European and Asian central banks move in the opposite direction.
On Friday, mixed U.S. data allowed for profit taking.
Meanwhile in Europe, the single currency found support after data showed that industrial production in the euro zone rose 0.1% in October, in line with expectations, after a 0.5% increase in September, whose figure was revised from a previously estimated 0.6% gain.
Year-on-year, the bloc’s industrial production increased 0.7% in October, beating expectations for a 0.5% rise, after a revised 0.2% uptick in September.
The dollar was down against the yen, with USD/JPY down 0.02% at 118.67, and down against the Swiss franc, with USD/CHF down 0.38% at 0.9645.
The greenback was up against the pound, with GBP/USD down 0.16% at 1.5707.
The U.K. Office for National Statistics reported earlier that construction output declined 2.2% in October, disappointing expectations for a 0.8% rise.
Construction output rose 2.2% in September, whose figure was revised from a previously estimated 1.8% gain.
The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.46% at 1.1575, AUD/USD down 0.28% at 0.8246 and NZD/USD down 0.65% at 0.7766.
The commodity-linked currencies came under pressure after China reported that its industrial production rose 7.2% in November, missing expectations for an increase of 7.5%, after a 7.7% gain in October.
The US dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.26% at 88.35.
Speculators became less bearish on the euro and the yen and more bullish on gold during the past week.
Gold futures gave back earlier gains on Friday, firming after mixed data weakened the dollar in the morning and sent the precious metal rising, though profit taking kicked in later in the session and sent the commodity into negative territory.
Gold and the dollar tend to trade inversely with one another.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery were down 0.24% at $1,222.70, up from a session low of $1,215.30 and off a high of $1,229.50.
The February contract settled down 0.31% at $1,225.60 on Thursday.
Futures were likely to find support at $1,186.40 a troy ounce, last Friday’s low, and resistance at $1,239.00, Tuesday’s high.
The dollar has rallied in recent months on expectations for U.S. monetary policy to grow less accommodative while European and Asian central banks move in the opposite direction, which has softened gold prices.
On Friday, however, mixed U.S. data cooled the dollar’s rally and gave gold room to rise, though by the end of trading, investors concluded that despite potholes here and there, the U.S. economy will continue to expand, the dollar will strengthen and gold will become less appealing as a hedge to economic uncertainty.
Elsewhere, silver for March delivery was down 0.32% at $17.057 a troy ounce, while copper futures for March delivery were up 0.32% at $2.930 a pound.
Oil prices tumbled to lows not seen in five years on Friday amid perceptions that a global supply glut may stick around for much longer than once anticipated.
In the New York Mercantile Exchange, West Texas Intermediate crude oil futures for delivery in January traded down 3.02% at $58.14 a barrel during U.S. trading, up from a session low of $57.36 a barrel and off a high of $59.55 a barrel.
The January contract settled down 1.62% at $59.95 a barrel on Thursday.
Support for the commodity was seen at $56.07 a barrel, the low from May 15, 2009, and resistance at $73.56 a barrel, the high from Nov. 28.
Oil prices have been falling in recent months on concerns that supply far outstrips demand, and a recent OPEC decision to leave output unchanged has exacerbated losses.
Don’t expect the supply glut to abate anytime soon, the International Energy Agency said in its December report released earlier, as more oil is still in the global pipeline.
“Barring a disorderly production response, it may well take some time for supply and demand to respond to the price rout,” the IEA said in its report.
“When it comes to supply, lower oil prices are already slashing producers’ spending, but this is more likely to affect medium- and long-term output than short-term supplies. So long is the lead of oil projects that price swings can take time to work their way through to supply. Projects that have already been funded will for the most part go on.”
Non-OPEC countries will also contribute to global supply.
The IEA also said it had cut its 2015 global oil demand growth forecast by 230,000 barrels per day to 0.9 million bpd.
Separately, on the ICE Futures Exchange in London, Brent oil futures for January delivery were down 2.44% at US$62.13 a barrel, while the spread between Brent and U.S. crude contracts stood at $3.99.
Natural gas futures jumped higher on Friday after updated weather-forecasting models called for a return of colder temperatures by the end of December, which should drive demand for heating.
On the New York Mercantile Exchange, natural gas futures for delivery in January were up 4.51% at $3.798 per million British thermal units during U.S. trading. The commodity hit a session low of $3.645, and a high of $3.802.
The January contract settled down 1.94% on Thursday to end at $3.634 per million British thermal units.
Natural gas futures were likely to find support at $3.606 per million British thermal units, Wednesday’s low, and resistance at $3.824, last Friday’s high.
Milder temperatures hovering over the U.S. should give way to colder mercury readings by the end of the month, which should prompt households and businesses to crank up their heating, which natural gas prices rising despite uncertainty as to how far south colder temperatures will go. Natgasweather.com reported in its Friday Midday Update:
“We expect high pressure to build into the western U.S. around Dec. 22-24th, which will open the door for much colder Canadian air to spill southward toward the northern U.S.. But the pattern is very tricky as there will be numerous weather systems given opportunity to tap into much colder temperatures, but how much they do, and also how far into the U.S. colder air advances is a challenge.”
Investors continued to digest Thursday’s bullish supply report.
The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended Dec. 5 fell by 51 billion cubic feet, more than expectations for a decline of 45 billion and compared to a drop of 22 billion in the previous week.
Inventories fell by 92 billion cubic feet in the same week a year earlier, while the five-year average change is a drop of 72 billion cubic feet.
Total U.S. natural gas storage stood at 3.359 trillion cubic feet. Stocks were 186 billion cubic feet less than last year at this time and 351 billion cubic feet below the five-year average of 3.710 trillion cubic feet for this time of year.
