Asian markets did not react well to news of a worsening oil price outlook and less than heartening U.S. economic data, as shares took a beating dropping to their 2011 lows.
Talk of global recession surfaces again
A global economic recession seemed like a very real possibility, as data trickled in from markets around the world. Oil prices have been on the decline, and the latest dip puts numbers at the lowest they have been since back in 2003. Brent, the global benchmark, saw its prices plummet to under USD 28 per barrel.
Analysts and strategists voiced their concern, noting that the fact that shares in Europe and the United States had slipped below their earlier lows of August was noteworthy. It could signal that a recession at a global level was a very real risk.
U.S. economic growth abruptly slows
The economic growth stateside saw a significant slowing in the last quarter of the year, according to data from the GDPNow forecast model from the Atlanta Federal Reserve. Growth for the fourth quarter is on a trajectory for a meager 0.6 percent compared to the healthier 2.0 percent of a quarter earlier. Retail sales saw an unlikely dip even as the industrial output in the United States continued to drop for the third month in a row in December.
However, the country’s Federal Reserve has refrained from responding to these day to day movements, in keeping with their approach to monetary policy. Investors lowered expectations on rate hikes by the Fed Reserve, with just a single rate hike (by year end) priced in for short-term interest rate futures, as opposed to the two for the beginning of the year. The S&P reached 15 month lows just shy of the long weekend for Martin Luther King Day.
Asia bears the brunt
China’s slowing worsened the situation, with the raw material and energy sectors being worst impacted. The Nikkei dropped to its one year low, strengthening the bear market in Japan (current levels are down 20 percent from the highs of June). A fall of 2 percent was also experienced in China, as the Shanghai Composite index reached levels of intraday lows of August of 2014.
Markets shudder worldwide
Brazil is already limping along in the throes of a recession, but latest results from the markets saw levels crash to March 2009 lows.
An already uncertain climate in Saudi Arabia, in the face of oil prices dropping, was worsened with share prices dropping by 5.4 percent to the lowest levels in five years. As other oil producers like the Kingdom have to sell off their shares to fund budgetary shortfalls, the trend worsens. Iran’s entry into the oil market after some sanctions were lifted will likely cause a further dip in prices.