Crude Oil Prices Falls
Crude Oil: After a spate of positive economic data rekindled fears that the Federal Reserve would swiftly increase borrowing costs to control inflation, US markets declined and the price of Brent oil fell to its lowest level since January.
The tech-heavy Nasdaq Composite fell 2% on Tuesday, adding significantly to the previous session’s steep falls, while the benchmark S&P 500 ended the day 1.4% down.
As traders interpreted hotter than anticipated US services data on Monday as a warning that the Fed will keep raising rates to battle inflation, Brent crude, the worldwide benchmark for oil, slipped below $80, down 4% to $79.35.
The US services sector’s economic activity increased for the 30th consecutive month in November, according to a study from the Institute for Supply Management. From zero at the beginning of the year, the Fed has increased its primary interest rate to a target range of 3.75 percent to 4 percent.
According to Michael Hewson, chief market analyst at CMC Markets in the UK, “a stickier inflation forecast increases the possibility of a weaker economy moving into 2023.”
Paul Horsnell, head of commodities research at Standard Chartered said oil was responding negatively to both good and bad economic data. “Oil has tended to be caught in the backwash from top-down macro trades,” he said.
“A negative US economic data point causes oil to be sold as recessionary fears increase, but a positive data point can also cause oil selling through being good for the US dollar and negative for risk assets,” he added. “There is always interplay between those effects, but in the past three weeks oil has tended to fall after both good and bad economic data.”
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Following a significant decline following the announcement of the ISM, the price of US government bonds increased on Tuesday. The yield on the two-year Treasury note, which is impacted by interest rates, dropped 0.04 percentage points to 4.36 percent. The benchmark 10-year note’s yield decreased by 0.08 percentage points to 3.52 percent. Prices rise while yields decline.
Next week, the Federal Reserve will convene its final meeting of the year, while the European Central Bank, Bank of England, and other central banks will also gather to discuss policy.
Meanwhile, Europe’s Stoxx 600 fell 0.6 per cent, with London’s FTSE 100 off by the same margin. Hong Kong’s Hang Seng index shed 0.4 per cent, while China’s CSI index of Shanghai- and Shenzhen-listed stocks gained 0.5 per cent.
