European equities are set to slide on the open once more as the risk off sentiment fails to abate.
Steep falls overnight in the US and Asia indicate that the bears are still running rampant and certain to be active on the open. With the major European indices chopping around the flat mark for the year and prospects for the global economy looking dim next year, many traders won’t want to ruin their Christmas’s by being on the wrong side of the markets next major move so moving to cash in the short term looks like the default move.
Amid fast declining oil prices, OPEC announced that its forecast for next year’s oil demand was downgraded sparking a sharp selloff in energy stocks. That in turn led to a significant tumble in the Dow Jones which lost 245 points to 17,544 the biggest drop since October 9.
The shared currency continued to rebound yesterday for the third straight session, gaining 74 pips against the US dollar to 1.2447. However, this could end up being a rebound supported by profit taking as the reality indicates a divergent state of affairs on the two sides of the Atlantic and the gap is nowhere near of being addressed. It appears that Saudi Arabia is focused more on maintaining its oil market share than worrying about prices according to Oil Minister Ali Al Naimi who said ‘the market will correct itself’. In the meantime the WTI crude prices stayed on their southward trajectory posting another steep plunge of $2.11 to $61.21.
The US Department of Energy released its weekly stockpiles report showing a build of 1.5 million barrels against estimates for a drop of 2.6 million barrels. Collapsing oil prices did reignite lately scares of another old trouble - deflation, the very phenomenon that quantitative easing was trying to protect the world from. Consequently gold is also losing its appeal as a hedge, yesterday the precious metal dropping $5.5 to $$1224.7. The question is we don’t buy gold because of deflation or we buy it as a hedge against turmoil?