Oil slump drives market decline

Energy and mining sector pain drags the FTSE lower.

Oil plant
Source: Bloomberg

A return to the template of an overnight Chinese selloff has dented European optimism, causing markets to tumble. The aggressive nature of this morning’s selloff highlights how fragile confidence in 2016 has been.

Once again, the financial world’s focus will be on the Alps as Davos hosts its annual World Economic Forum. Traders will be conscious that the potential for market-moving commentary is always there, due to the volume of central bankers and corporate leaders willing to talk to the press.

Oil remains below $29 a barrel and looks more inclined to test the limits of how low it can go, rather than find any traction regardless of the consequences. Oil’s price action, in conjunction with the doomsday scenario that BHP Billiton has painted in its trading update, has given the mining sector and energy stocks all the excuse they need to slump once again.

The first couple of hours saw over 6% wiped off for BHP Billiton, Anglo American and Glencore.

The currency markets are still coming to terms with the wording of Mark Carney’s speech yesterday, and the instantaneous fall in sterling. Although GBP/USD might be off its lows, calling the price action a bounce might be stretching things just a little bit, with today's wage data the sore point in an otherwise healthy employment update from the UK.

This afternoon will see the continuation of the US reporting season, with Goldman Sachs the latest big name blue chip to post its fourth-quarter figures. The corporate posts however look likely to take a back seat in traders’ thinking as the latest US inflation figures and crude oil inventories have every chance of piling on the pain.

Ahead of  the open, we expect the Dow Jones to start 319 points lower, at 15,697.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.