Oil reaches new low as it continues to dominate the markets

After spending much of Monday hoodwinking the global markets that it might begin to rally, Brent Crude oil showed its true colours yesterday afternoon, culminating in the commodity falling below the $60 per barrel level this morning to $59.61.

With this breach of oil’s latest proposed support level, once more investors are scrambling to figure out what will be the end point of this plunge. However, without any actual movement towards cutting oil production, there is no reason for oil to stop falling. It is now left to see how long this global standoff on the oil situation, and what price will cause either OPEC or the USA to blink first.

The Dow’s glory days of nearing 18000 continue to recede in memory, as it closing marginally lower last night to 17223.5. This was despite a round of data that was largely positive, reflecting the power that oil is having on the markets at the moment. It is difficult to see the markets being able to regain any sustained bullish sentiment whilst oil remains in freefall, with the Dow perhaps the biggest indicator of this. The Dow Jones was far and away the healthiest of the world indices at the start of oil’s fall, and has consistently been serviced by positive data from America; however, even this strong position could not help fall victim to oil’s black hole. Whilst the US can withstand these cheap oil prices, many of its companies will not be too happy with the apathetic reaction from the US government.

Unsurprisingly considering oils hypnotic power over the markets recently, the FTSE quickly began falling after the bell, reaching 6154.5 after closing yesterday at 6179. This comes despite a largely positive bank stress test from the Bank of England, with only Co-op needing to strengthen its position. However, Lloyds and RBS only managed to scrape a pass, and more worryingly, the Bank of England reported a decline in global economic outlook since June 2014. Carney and co. pointed to the rise in worldwide political tensions and the domineering oil decline as being the key contributors to this situation.

In Europe, the Russian rouble’s precipitous drop against the dollar led Russia’s central bank to make a staggering rise in interest rates from 10.5% to 17%. Such an giant increase suggests genuine fear in Russia over the state of their currency; however this move barely led to much change in the rouble’s value against the dollar, and could end up causing more problems than it fixes.

Elsewhere in Europe, the DAX suffered a similar fate to the FTSE, opening at 9365.8 after closing at 9341, as it too struggles under this latest oil collapse. This continued fall came despite better than forecast German flash manufacturing PMI figures, at 51.2; however, this was somewhat negated by a drop in France’s same figures, to 47.9, and relatively flat figures from the overall Eurozone. The German index will be looking to the ZEW economic sentiment in order to try and stall its 3 day drop.

Finally, as has been the story everywhere else, the Nikkei could not escape the oil crisis, falling below the 17000 mark to close at 16707.5. This will be unwelcome news to the recently re-elected Shinzo Abe, who could previously point to the Nikkei’s growth as a tenant of his Three Arrows of ‘Abenomics’.