(Wall Street Journal) – Global stocks dropped sharply Tuesday as the recent rout in commodities prices kept mining and energy shares under pressure.
Worries about oversupply and waning demand for a range of commodities have sent prices for those resources sharply lower, with iron-ore prices hitting levels not seen in a decade and oil sliding to a seven-year low.
The selloff filtered through into stock markets Tuesday, with heavy selling in the mining sector dragging European and Asian shares lower. The Stoxx Europe 600 was down 1.9% in early afternoon trading.
Futures indicated a 1.2% opening loss for the S&P 500, after a drop in energy shares had also sent major U.S. indexes down on Monday, as a recent oil-price decline gathered steam. Changes in futures aren’t necessarily reflected in market moves after the opening bell.
Brent crude resumed its decline Tuesday after a short-lived bounce and dropped below $40 a barrel for the first time since March 2009, off 1.8% to $39.99. Oil prices also dropped sharply Monday after the Organization of the Petroleum Exporting Countries’ decision to keep output high.
With most commodities analysts predicting further weakness in oil and metal markets, the equity and bonds from these sectors are expected to remain under pressure.
“Are we going to hit the bottom [for commodity prices and mining shares] or is this a bottomless pit? There’s just this relentless disconnect between supply and demand,” said Jeremy Batstone-Carr, chief economist and strategist at London-based brokerage and wealth manager Charles Stanley.
“It seems the path of least resistance is still down.”
The selloff in metals continued, with all the major industrial metals lower, while iron ore was down 1% on Tuesday.
The basic resources index on the Stoxx Europe 600 was down 5.8%. Some of the regions biggest miners were getting hammered through Tuesday morning. Glencore PLC was down by 8.0%, while shares in mining giants Anglo American PLC and Rio Tinto PLC lost 8.8% and 6.2%, respectively, despite both companies outlining plans to rein in spending on Monday.
Asian indexes also suffered as Monday’s drop in oil prices hit energy companies and raw materials producers. The Shanghai Composite Index fell 1.9%, Japan’s Nikkei Stock Average fell 1% and Australia’s mining-heavy S&P/ASX 200 fell 0.9%.
Gold declined 0.6% at $1,069.20 an ounce.
In currencies, the euro was up 0.3% against the dollar at $1.0874 as markets continued to focus on the divergent path of global central banks.
While the European Central Bank moved to further ease policy on Thursday, a strong jobs report on Friday appeared to have cleared the way for The Federal Reserve to raise interest rates at its Dec. 15-16 meeting.
Ultralow interest rates have boosted equity markets in recent years, but stocks gained after the jobs report as investors appeared to be reassured by a sign of confidence in the U.S. economy and clarity over the Fed’s plans.
“If they don’t raise rates [in December], I think markets will worry ‘What does the Fed see that we don’t see?’” said Andrew Parry, head of equities at Hermès Investment Management, which oversees £29.5 billion ($44.42 billion) in assets. While he expects the Fed to raise rates in December, he believes the path ahead for U.S. rates is far from clear. “Can the Fed really normalize [monetary policy] when the rest of the world feels things are abnormal?”
Later Tuesday, investors will eye further data on the U.S. labor market, with a monthly small-business survey and a look at employee confidence.
