Slide in oil prices hits global stocks

Volatility swept through world markets yesterday, as a renewed slide in oil and weakness in credit markets hit stocks, weighed on bond yields and added to the nervousness already building ahead of an expected U.S. interest rate hike later this week.

European stocks wiped out earlier gains to trade in the red by midsession, while U.S. futures turned flat.

Brent crude tumbled 3.4 per cent to trade as low as $36.62 a barrel, its lowest since December 2008. A fall below $36.20 will take oil prices down to levels not seen since 2004.

Jitters in high-yield bond markets, which are among the most vulnerable to higher U.S. rates, also rattled investors.

Lucidus Capital Partners has liquidated its entire portfolio and plans to return the $900 million it has under management to investors next month, according to a media report.

Earlier, Asian stocks and emerging markets had come under pressure after the People’s Bank of China continued to guide its currency lower, setting the yuan/dollar official midpoint at its weakest since July 2011.

At midday in Europe the FTSE EuroFirst index of leading 300 shares was down 0.7 per cent at 1,387 points, extending last week’s 3.8 percent fall, the second biggest weekly fall this year.

The index had traded up as much as one per cent earlier Monday.

Britain’s FTSE 100 was down 0.2 per cent and Germany’s DAX was down 1.1 per cent, also struggling under the weight of a rebound in the euro.

MSCI’s broadest index of Asia-Pacific shares outside Japan hit a 2-1/2-month low and was last down 0.9 per cent. Japan’s Nikkei fell 1.8 percent.

“It’s a perfect storm – the high yield sector and the fact that oil prices are unable to find a bottom – and has left investors floundering for any good news,” said Brenda Kelly, head analyst at London Capital Group.

U.S. stock futures pointed to a flat open on Wall Street. On Friday, the Dow sank 1.8 per cent and the S&P 500 lost 1.9 per cent. Both indices are in the red year-to-date, on track for their first annual decline since 2008.