World stock markets and energy prices fell yesterday after both energy producers and consumers predicted an oil glut was likely to persist well into next year.
The International Energy Agency said a sharp slowdown in global oil demand growth, coupled with ballooning inventories and rising supply, mean the crude market will be oversupplied at least through the first six months of 2017.
The IEA’s comments follow a surprisingly bearish outlook from the Organisation of the Petroleum Exporting Countries (Opec) on Monday that also pointed to a larger surplus next year.
Financial shares fell on weakened prospects of an interest rate hike in the near-term, adding to the early negative tone in US stocks, which were down more than one per cent.
Volatility in stocks and other assets has picked up since Friday as investors have weighed chances of an interest rate hike at the Federal Reserve’s September 20-21 meeting.
On Monday, Fed Governor Lael Brainard, the last Fed official to comment before the US central bank’s next meeting, kept to a dovish tone on rates and urged caution about removing monetary stimulus too quickly.
In the energy market, Brent crude was down 2.3 per cent, while US crude fell three per cent.
The S&P energy index was down 2.7 per cent, while the S&P financial index was down two per cent. The Dow Jones industrial average was down 231.06 points, or 1.26 percent, to 18,094.01, the S&P 500 had lost 30.89 points, or 1.43 per cent, to 2,128.15 and the Nasdaq Composite had dropped 62.71 points, or 1.2 per cent, to 5,149.18.
MSCI’s all-country world stock index was down one per cent, while European shares were down 0.6 per cent.
Another trigger for the turmoil of the last few days was disappointment that the European Central Bank did not signal an extension of its bond-buying stimulus programme at its meeting last Thursday. That helped push up yields on government bonds in the euro zone, many of which were negative, as well as yields in Japan, the US and elsewhere.
On Tuesday, the U.S. dollar recovered while US Treasuries were steady, with the yield curve holding near its steepest levels in more than one month before the government is due to auction $12 billion in long bonds.
Long bonds have underperformed in the past month, in line with a steepening yield curve in Japanese government bonds, with the Bank of Japan studying options to steepen the yield curve to help prompt new lending by banks.
Thirty-year US yields held just below two-and-a-half-month highs at 2.49 per cent yesterday. They have jumped from 2.22 per cent last Thursday.
The US dollar index was up 0.3 per cent.