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Markets
Oil's Tumble Roils Global Markets
From the Wall Street Journal of Tue, 16 Dec 2014 11:26:14 EST
A display shows share prices in Tokyo on Tuesday, where shares joined global market slides.
A display shows share prices in Tokyo on Tuesday, where shares joined global market slides. European Pressphoto Agency

The prolonged slump in oil prices sent shudders through global financial markets on Tuesday, as investors concerned about the fallout shed stocks and other risky assets and piled into the safety of government debt.

But the U.S. stock market remained resilient, underscoring investors’ faith in the U.S. economy. The Dow Jones Industrial Average opened lower, but turned higher in choppy morning trading. The blue-chip index was recently up 82 points, or 0.5%, at 17262.

The yield on the benchmark 10-year U.S. Treasury note went as low as 2.054%, according to Tradeweb. That’s also the lowest since October, when the yield briefly plunged below 2%. When bond yields fall, prices rise. The yen, another asset considered safe in times of turmoil, was up sharply against the dollar.

Driving the latest leg of the selloff in the world’s stock markets was another sharp drop in the price of crude oil, which rendered ineffective a surprise rate increase by Russia’s central bank. Russia jacked up interest rates to 17% early Tuesday in an attempt to stem the ruble’s depreciation.

“The largest driver of the marketplace right now is the price per barrel of oil,” said Art Hogan, chief market strategist at brokerage firm Wunderlich Securities. “Energy…is in a free fall,” he said. “Not knowing what kind of…collateral damage that might cause” has prompted caution about investing in risky assets such as stocks, he said.

Some investors are worried that the plunge in oil prices, which are now down about 50% since June, signals a softening global economy. Manufacturing indicators in Europe and China on Tuesday pointed to tepid growth. Brent crude, the global benchmark, was recently 3.5% lower at $58.90 a barrel.

“There is still a lot of panic in the market, and the latest data out of China and Europe doesn’t seem to change that picture,” said Thina Saltvedt, an oil market analyst at Nordea Bank.

The battered ruble plunged to a record low against the dollar again Tuesday, as investors grew convinced that the Bank of Russia’s rate increase wouldn’t be enough to alleviate the pressure on the currency from falling oil prices and Western sanctions.

By early afternoon in Moscow, the ruble dropped sharply, reaching 80 to the dollar, a record low and a 35% decline from opening levels when it rallied briefly.

The selloff, which rattled emerging markets as well as big European bourses, comes a day ahead of the conclusion of a policy-setting meeting of the Federal Reserve. Also weighing on sentiment are expectations that the Fed will take a step toward raising short-term interest rates in the U.S. next year.

Higher rates in the U.S. could speed up outflows of capital from developing countries, which already have sent currencies lower against the dollar.

Still, U.S. stocks remain near all-time highs. Many investors say they aren’t worried about the recent decline in major U.S. stock indexes because they believed shares had become overvalued by some metrics.

—Andrey Ostroukh, Alexander Kolyandr and Chiara Albanese contributed to this article.

Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com and Alexandra Scaggs at alexandra.scaggs@wsj.com



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