Commodities and oil’s 7-year low drags FTSE down 2.2%
The FTSE 100 fell every trading day last week, culminating in a 2.2% fall on Friday. The price movements were primarily driven by further volatility in the commodity markets, highlighted by the oil price reaching a seven-year low of $38 (this morning it has fallen to $37, below the low seen in 2008). Commodity heavy equity markets like the FTSE 100 have been hit the hardest, with heavyweight companies such as Royal Dutch Shell dragging down the market. The sources of this further trauma have been a combination of sustained aggressive policy from OPEC regarding their supply of oil and China growth concerns.
Those with concerns over the state of the Chinese (and global) economy has some data to back up their fears last week. Overseas exports from China dropped 6.8% from a year earlier, and imports fell 8.7% in dollar terms, marking the 13th month in a row. While this data will undoubtedly be distorted by the fall in commodity prices reducing the “dollar” value of trade, the headline news has still caused concern. The relatively new regime in China is continuing to reform the economy, placing a greater emphasis on culture and integrity even if it is at the expense of economic growth. This has been highlighted by another high profile businessmen being taken in for questioning by the authorities. The crackdown on corruption by the government has harmed luxury goods makers and retailers in the short term. However, the result may be to produce less opaque and better run companies which in the long term will improve the Chinese economy and be more attractive to international investors.
In the UK we also had trade data, showing falling exports and rising imports in October, widening the trade deficit. The trade balance has not been helped by the strong Stirling, making our exports more expensive to overseas buyers and international goods more attractive to UK consumers.
|UK 10 Year Gilt Yield||1.919||1.831||-0.088||-4.59%|
Wednesday will see the long awaited Federal Reserve interest rate announcement, where the committee is now widely expected to declare a rate rise. This will be watched closely and, whatever the result, will likely cause some increased market volatility.