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| Oil and US share prices tumble over fears for global economy | Oil and US share prices tumble over fears for global economy |
| (about 1 hour later) | |
| US stocks fell heavily on Wednesday, with the Standard & Poor’s 500 falling 2.5% to take the index below 1,900 points for the first time since September, due to growing concerns about the falling oil price, which dipped below $30 a barrel for the first time in nearly 12 years. | US stocks fell heavily on Wednesday, with the Standard & Poor’s 500 falling 2.5% to take the index below 1,900 points for the first time since September, due to growing concerns about the falling oil price, which dipped below $30 a barrel for the first time in nearly 12 years. |
| The S&P 500, which closed at 1,890 points, suffered its worst day since September and has fallen by 10% since its November peak taking it into “correction” territory, something that has not happened since August 2014. | The S&P 500, which closed at 1,890 points, suffered its worst day since September and has fallen by 10% since its November peak taking it into “correction” territory, something that has not happened since August 2014. |
| The Dow Jones industrial average dropped by 364 points, or 2.2%, to 16,151, and the Nasdaq composite dropped 159 points, or 3.4%, to 4,526. This deepened the New York stock exchange’s already worst start to a year on record. | The Dow Jones industrial average dropped by 364 points, or 2.2%, to 16,151, and the Nasdaq composite dropped 159 points, or 3.4%, to 4,526. This deepened the New York stock exchange’s already worst start to a year on record. |
| Wednesday’s stock market declines were triggered by new figures showing US gasoline stockpiles had increased to record high, which caused Brent crude prices to fall as low as $29.96, their lowest level since April 2004, before settling at $30.31, a 1.8% fall. The oil price has fallen by 73% since a peak of $115 reached in the summer of 2014. | |
| Industry data showed that US gasoline inventories soared by 8.4m barrels and stocks of diesel and heating oil increased by more than 6m barrels – confirming the forecasts of many analysts that a huge oversupply of oil could keep prices low during most of 2016. | Industry data showed that US gasoline inventories soared by 8.4m barrels and stocks of diesel and heating oil increased by more than 6m barrels – confirming the forecasts of many analysts that a huge oversupply of oil could keep prices low during most of 2016. |
| Analysts said that growing fears of a weakening outlook for the global economy, made worse by falling oil prices, was behind the steep falls. Some oil analysts this week predicted that the price could fall as low as $10. | Analysts said that growing fears of a weakening outlook for the global economy, made worse by falling oil prices, was behind the steep falls. Some oil analysts this week predicted that the price could fall as low as $10. |
| Related: China sees 'many challenges' in 2016 as trade slumps on weak external demand | Related: China sees 'many challenges' in 2016 as trade slumps on weak external demand |
| In recent days several analysts have warned that the global economy could suffer a repeat of the 2008 crash if the knock-on effects of a contraction in Chinese output pushes down commodity prices further and sparks panic selling on stock and bond markets. | In recent days several analysts have warned that the global economy could suffer a repeat of the 2008 crash if the knock-on effects of a contraction in Chinese output pushes down commodity prices further and sparks panic selling on stock and bond markets. |
| Amid the turmoil, a $48bn bond offer by brewer Anheuser-Busch Inbev - to fund its takeover of SAB Miller - attracted a record $110bn of offers as investors sought relatively safe investments. | Amid the turmoil, a $48bn bond offer by brewer Anheuser-Busch Inbev - to fund its takeover of SAB Miller - attracted a record $110bn of offers as investors sought relatively safe investments. |
| Earlier in the day China’s stock market fell more than 2% after officials played down the significance of better-than-expected trade figures for December, saying exports could sink further before they find a floor. | Earlier in the day China’s stock market fell more than 2% after officials played down the significance of better-than-expected trade figures for December, saying exports could sink further before they find a floor. |
| The numbers surprised the markets, where economists had been forecasting a much weaker reading. Traders were also cheered when the numbers were translated into the weakening local currency, the yuan, which showed exports reaching a record value in December, up 2% on the previous year. | The numbers surprised the markets, where economists had been forecasting a much weaker reading. Traders were also cheered when the numbers were translated into the weakening local currency, the yuan, which showed exports reaching a record value in December, up 2% on the previous year. |
| They appeared to offset gloomy predictions of a stock market rout in 2016 made by several investment bank analysts, including RBS’s credit chief, Andrew Roberts. | They appeared to offset gloomy predictions of a stock market rout in 2016 made by several investment bank analysts, including RBS’s credit chief, Andrew Roberts. |
| Roberts warned earlier this week of a possible 20% drop in stock markets and a period of turmoil that would knock the prospects for global GDP this year. His advice to investors was to sell everything except high quality bonds. | Roberts warned earlier this week of a possible 20% drop in stock markets and a period of turmoil that would knock the prospects for global GDP this year. His advice to investors was to sell everything except high quality bonds. |
| China’s stock market rallied almost 20 points initially, but comments by officials that weak demand for Chinese goods would continue to hurt the country’s economy in 2016 sent the Shanghai composite down 2.4% by the end of the trading period to 2949. | China’s stock market rallied almost 20 points initially, but comments by officials that weak demand for Chinese goods would continue to hurt the country’s economy in 2016 sent the Shanghai composite down 2.4% by the end of the trading period to 2949. |
| Some economists argued that the figures showed trade with China was beginning to stabilise after a year of contraction. Daniel Martin, an economist at Capital Economics, said: “China’s trade data support our view that, despite the turmoil in Chinese financial markets, there has not been a major deterioration in its economy in recent months. | Some economists argued that the figures showed trade with China was beginning to stabilise after a year of contraction. Daniel Martin, an economist at Capital Economics, said: “China’s trade data support our view that, despite the turmoil in Chinese financial markets, there has not been a major deterioration in its economy in recent months. |
| “Meanwhile, another large trade surplus last month provides a cushion for the People’s Bank in the face of soaring capital outflows.” | “Meanwhile, another large trade surplus last month provides a cushion for the People’s Bank in the face of soaring capital outflows.” |
| Tom Rafferty of the Economist Intelligence Unit said: “China’s improved trade data in December will probably act to reassure global investors unnerved by the recent volatility in the country’s financial and foreign exchange markets. | Tom Rafferty of the Economist Intelligence Unit said: “China’s improved trade data in December will probably act to reassure global investors unnerved by the recent volatility in the country’s financial and foreign exchange markets. |
| “The data is in line with other indicators that suggest China’s economy is stabilising on the back of sustained stimulus measures.” | “The data is in line with other indicators that suggest China’s economy is stabilising on the back of sustained stimulus measures.” |
| The country’s global trade surplus widened by 21% to $60bn in December. Over the whole year it was $594bn. The country’s trade surplus in December with the European Union, its biggest trading partner, increased 36.8% to $15.6bn. The surplus with the US contracted 6% to $19.4bn. | The country’s global trade surplus widened by 21% to $60bn in December. Over the whole year it was $594bn. The country’s trade surplus in December with the European Union, its biggest trading partner, increased 36.8% to $15.6bn. The surplus with the US contracted 6% to $19.4bn. |
| Some analysts questioned the trade figures, saying they were suspiciously buoyant after an unexplained 10% surge in exports to Hong Kong. That rise meant that the former UK colony imported more from mainland China than the US. | Some analysts questioned the trade figures, saying they were suspiciously buoyant after an unexplained 10% surge in exports to Hong Kong. That rise meant that the former UK colony imported more from mainland China than the US. |
| Iris Pang, a senior economist for Greater China at Natixis SA in Hong Kong, told Bloomberg that the increase in exports to Hong Kong and China’s imports from the city probably indicated “fake invoicing”. The invoicing of China trade should be larger in December because of the wider gap between the onshore yuan and the offshore yuan traded in Hong Kong, she said. | Iris Pang, a senior economist for Greater China at Natixis SA in Hong Kong, told Bloomberg that the increase in exports to Hong Kong and China’s imports from the city probably indicated “fake invoicing”. The invoicing of China trade should be larger in December because of the wider gap between the onshore yuan and the offshore yuan traded in Hong Kong, she said. |
| Related: The perils of China's currency devaluation | Related: The perils of China's currency devaluation |
| Albert Edwards, an economist at Société Générale, who has predicted that global stock markets will tumble this year, said moves by the Chinese authorities to devalue the yuan to boost exports would have profound consequences for the global economy. | Albert Edwards, an economist at Société Générale, who has predicted that global stock markets will tumble this year, said moves by the Chinese authorities to devalue the yuan to boost exports would have profound consequences for the global economy. |
| He said that despite a large trade surplus, the huge capital flight from China, as savers take their cash out of the country, was forcing the hand of regulators. | He said that despite a large trade surplus, the huge capital flight from China, as savers take their cash out of the country, was forcing the hand of regulators. |
| “I have always thought that in order to revive a spluttering Chinese economy, the authorities would have to devalue, but not just because an overvalued exchange rate was squeezing their manufacturing sector. | “I have always thought that in order to revive a spluttering Chinese economy, the authorities would have to devalue, but not just because an overvalued exchange rate was squeezing their manufacturing sector. |
| “Instead I felt that an overvalued exchange rate had steadily undermined competitiveness to the point that it had undermined the balance of payments. This was compounded last year by an accelerated capital outflow as anti-corruption measures intensified, and an unprecedented unwinding of dollar-denominated borrowings by Chinese corporates. All these factors have combined to take the Chinese balance of payments into deep deficit.” | “Instead I felt that an overvalued exchange rate had steadily undermined competitiveness to the point that it had undermined the balance of payments. This was compounded last year by an accelerated capital outflow as anti-corruption measures intensified, and an unprecedented unwinding of dollar-denominated borrowings by Chinese corporates. All these factors have combined to take the Chinese balance of payments into deep deficit.” |
| Optimists also pointed to a rise in Chinese crude imports to a record 7.82m barrels in December, up more than 21% from November, as a reason to believe that China’s ailing manufacturing sector was gearing up for better days. | Optimists also pointed to a rise in Chinese crude imports to a record 7.82m barrels in December, up more than 21% from November, as a reason to believe that China’s ailing manufacturing sector was gearing up for better days. |
| It appeared, however, that the world’s second-biggest oil consumer was simply taking advantage of the oil price rout to stock reserves and increase exports of refined products. | It appeared, however, that the world’s second-biggest oil consumer was simply taking advantage of the oil price rout to stock reserves and increase exports of refined products. |