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Market report: Wednesday, February 3

The Australian share market is lower at noon following further steep falls in oil prices.

Feb 03, 2016, updated Aug 29, 2019

The nervousness experienced in early January has returned to the local market after oil prices dropped more than five per cent overnight and triggered a significant sell off of energy stocks in the US, CMC Markets analyst Ric Spooner said.

“The number one driver is the return to a big drop in oil prices,” Spooner said.

“Investors are concerned about capital investment in the oil and gas sector.

“People are concerned that if we see $US20 oil we could see bankruptcies and pressures on credit markets.”

Benchmark Brent crude is down 4.59 per cent, or $US1.57, while US WTI crude is down 5.41 per cent, or $US1.71, at $US29.91 a barrel after hopes faded for a deal between oil-producing nations to curb a massive supply glut.

Energy stocks were hit the hardest, with Santos down 15 cents, or 5.1 per cent, at $2.77, Woodside Petroleum down 80 cents, or three per cent, at $26.18 and Oil Search was 5.5 cents weaker, down 0.9 per cent, at $6.32.

The big miners were all lower, with BHP down 62 cents, or 4.1 per cent, at $14.30 and Rio Tinto was 56 cents weaker at $36.99 and Fortescue Metals was down 0.75 cents at $1.59.

Among the banks, Commonwealth was down $1.52 at $76.48, National Australia Bank had dropped $1.46 to $26.46, Westpac had shed 45 cents to $29.85 and ANZ was 68 cents weaker at $23.71.

NEW YORK – US stocks have extended their selloff closing sharply lower as falling oil prices heightens concerns regarding the health of the global economy and investors sought safer investments.

“We still haven’t broken the correlation between oil and equities and we are yet to find a bottom in oil prices,” said Jeff Carbone, co-founder of Cornerstone Financial Partners in Charlotte, North Carolina.

Carbone said consumer savings from cheap gasoline have failed to translate into higher spending as US consumers opt to pay down debt rather than buy big-ticket items.

Investors have been concerned about a China-led global economic slowdown, tepid US economic data and the pace of rate hikes by the Federal Reserve.

“Investors have been looking at the data and while the data has been good, it hasn’t been great and investors remain concentrated on the negative news.”

LONDON – Britain’s top share index has fallen sharply, knocked down by a drop in BP after the oil major reported its biggest ever annual loss.

The blue-chip FTSE 100 index closed 2.3 per cent lower at 5,922.01 points, with the FTSE down 5 per cent since the start of 2016.

BP shares slumped 8.7 per cent with the company’s results even worse than when it counted the costs of the deadly Gulf of Mexico oil spill in 2010, raising questions over the sustainability of its dividend and some concerns over its debt position.

The worries about China and persistent concerns about an oversupply in the market have hit oil prices, which lost ground again on Tuesday.

HONG KONG – Concern over oil continued to dominate while pressure remained after weak economic data from China, Europe and the United States, a US forecast for mild weather and doubts that big oil-producing countries will agree to cut the global supply glut.

“In a bear market, investors would use any rebound to cut equity holdings, and that has been the trading pattern recently,” said Zeng Yan, an analyst at Zhongtai Securities, referring mainly to Chinese markets.

“There are no changes in fundamentals: yuan depreciation concerns are still there, the economy remains in bad shape, and market liquidity tends to be tight.”

BRUSSELS – European Council President Donald Tusk has set out a plan for keeping Britain in the European Union to a mixed reception which underlined the challenges Prime Minister David Cameron faces convincing Britons they should stay in the bloc.

DUBLIN – Ireland’s unemployment rate has fallen to a seven-year low of 8.6 per cent as the country – buoyant again after years of gloom and austerity – prepares for a general election.

DALLAS – The big plunge in oil prices is taking Big Oil’s profits down.

ENERGY

Oil prices have again plunged.

Benchmark Brent crude is down 4.59 per cent, or $US1.57, while US WTI crude is down 5.41 per cent, or $US1.71, at $US29.91 a barrel at 0835 Wednesday AEDT. Hopes faded for a deal between oil-producing nations to curb a massive supply glut.

The prolonged crude slide was reflected in results from oil majors BP, whose shares slumped after it posted a $US6.5 billion ($A9.22 billion) loss for 2015, and Exxon, which posted its smallest quarterly profit in more than a decade.

PRECIOUS METALS

Gold has steadied after touching three-month highs, underpinned by global growth concerns and as another sharp drop in the oil price pushed investors toward safe-haven assets.

Weak Chinese manufacturing data on Monday underscored the challenges for the world economy, while volatility in oil and other assets fuelled interest in gold as a haven from market turmoil.

“In the near term gold is finding some support in the dovish tone from central banks last week, notably the Fed and the Bank of Japan,” said Jens Pedersen, senior analyst at Danske Bank.

However, gold prices have been capped to the upside as the Fed has kept the door open for a rate increase in March.

“It is perfectly possible that it will move towards $US1,150 (in coming weeks) and then it will depend on the equity markets,” said Carsten Menke, an analyst at Julius Baer.

“Clearly this is an environment that is supportive for gold in the short term.”

BASE METALS

Copper has hit a four-week high as bets on lower prices were reversed ahead of a Chinese holiday, but prices fell later in the day as focus returned to oversupply and weak demand growth in top consumer China.

Traders and funds covering short positions ahead of the week-long Chinese Lunar New Year holiday starting on Monday were said to be behind the earlier price surge.

“The overall picture for copper is bearish,” said Barclays’ commodities analyst Dane Davis.

“The Chinese holiday means the entire country shuts down. I would caution against interpreting price swings in February as we really don’t know what’s going on with the fundamentals.”

ASX stocks to watch Wednesday, February 3

BHP – BHP BILLITON

FMG – FORTESCUE METALS GROUP

RIO – RIO TINTO

Miners are likely to be in focus again on Wednesday with commodity prices still volatile.

ORG – ORIGIN

OSH – OILSEARCH

STO – SANTOS

WPL – WOODSIDE PETROLEUM

Energy stocks could be in for another hit with oil prices again heading south.

AAP

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