Liberal Media Exposed

Wednesday, February 19, 2020

Financial News

One of the biggest financial worries right now is the slow pace of the Eurozone economy, fueling fears of a new recession and even possibly another debt crisis. That’s been overshadowed in the last few days though, as the equities markets unexpectedly slumped. For the past few weeks stocks, including the headline FTSE 100 index, have been turning in a reasonable enough performance even if it wasn’t anything spectacular. That looks like it might be changing, which is sure to stoke up the worries over the way Europe’s heading. That’s obviously a worry for US firms too, because Europe is the USA’s biggest export market, so we can expect a few jitters on the Dow Jones if the overseas markets don’t recover quickly.
The latest glitch was caused by investors dumping shares in commodities. The big financial story of late 2914 has been the sustained drop in oil prices, with Brent crude now well below $70 a barrel and still heading down. The reason for the fall is simple – OPEC haven’t cut their production target despite huge increases in US domestic extraction – but the net result is oil below its five-year low and still in free fall. The lower costs imposed by cheap oil are good news for the economy, but it makes oil a bad investment. It’s also depressed shares across the whole energy sector with exploration companies hit particularly hard – some of them lost close to 8 percent in a day and a half.
Meanwhile precious metals are having a rough patch, with all of the big five trading at well below the year’s peak and a couple pushing through five-year lows. Usually falling metals prices are a sign of a buoyant stock market, with traders moving out of safe havens to take advantage of rising prices, but this time commodities seem to be dragging the major indexes down with them. Last week’s Swiss referendum rejecting higher national gold reserves pushed the spot price down 2.1 percent and the FTSE 100 quickly followed.
Base metals are down as well, thanks mainly to slower than expected growth in China’s manufacturing sector. China is now the world’s largest market for raw materials and any weakness in their figures has an instant effect on prices.  That’s good news for other commodity consumers of course, but not if it creates uncertainty. This looks to be exactly what’s happening.
Probably the most worrying aspect for investors is the oil slump. Growing fears of sovereign default in oil-exporting nations are adding to worries already stoked by the problems in Europe, and with memories of 2008 still raw that has the potential to push stocks down sharply. There are exceptions though. Low crude prices, especially Brent, should lead to lower fuel prices in the short term. That’s already helping some stocks buck the trend, with airlines being the most noticeable. Lower fuel costs aren’t likely to cut fares, so airline profitability is looking healthy. International Airlines Group is up 2 percent over the last week with other operators also posting gains. That’s probably where the smart money is right now.