EU, US Equities Plunge the Most since Summer Rout

Last week was dismal for global equities, as US and EU stocks took a strong hit from a grim OPEC oil price outlook, resulting in the worst week on Wall Street since the August selloff.

In the US, S&P 500 shrank by 3.6% over the week, the worst week-on-week performance this autumn. The plunge was driven by investors’ concerns about commodities outlook, as OPEC warns that weak demand for oil will exacerbate the glut that has already formed on the market. With 3 billion barrels of oil now stored across the world, most countries’ capacities are nearing their limit, stoking uncertainty among investors about the short- and medium-term prospects of the oil market. This immediately resulted in an oil price drop to below $45 on Thursday, driving US energy stocks down by 6% over the week and DJIA by 3.7%.

Similar effects could be traced in European equities. The broad index Stoxx 600 lost 1.6% during the week, and FTSE was down 3.71%, the most since August. BP and Royal Dutch Shell dropped 0.8 and 0.9% accordingly, with Glencore, a UK-based mining and commodities company, plunging as much as 12%. Rolls-Royce was the worst performer of the week on FTSE 100, seeing as much as 20% of its market value evaporate after the company’s 4th profits warning this year. Volatilities in the airline industry make the company review its profit expectations in its core business of jet-engine production. Analysts predict that further fall is still possible, with Fitch warning to downgrade the credit rating of the automobile- and engine-maker.

Additionally, a stronger dollar and expectations of warm weather took their toll on US retail industry, with Macy’s and Nordstrom cutting their profit forecasts leading to a broader industry selloff. The S&P 500 retail index was down 5.2% last week, in what is the largest weekly drop since 2012. The simultaneous selloff in retail and energy triggered a broader rout, with equities in all industries showing negative returns over the week. The only exception for this were utilities, which showed a mild growth of 0.2%. Utilities are commonly viewed as “safe haven” among stocks, primarily for their regular dividend payoffs and stable revenues.

This week is starting on an upbeat note. The market reaction to the Paris attacks on Friday was moderate, and European equities are on the rise again, bolstered by the cheapest Euro in 7 months. With yen slipping against the dollar, for Japanese stocks this week also started well. Time will show if this trend makes it till the end of the week.