Prices of both Brent and US crude fell 1.8%, reversing a brief rebound that helped shares in the Middle East over the weekend, while Chinese stocks fell almost 3% after a weak batch of industrial profits data.
While most bank dealing rooms in Europe were on skeleton staffing, and London markets shut, that had repercussions for a range of assets, driving the Australian and Canadian dollars down about a third of a percent and pushing bond yields lower.
Profits at Chinese industrial companies in November fell 1.4% from a year earlier, the sixth consecutive month of decline and another sign that the world’s chief engine of growth for the past decade is sputtering.
“Over-capacity and declines in producer prices are hurting the Chinese government efforts and if the government cannot come up with a solution to stop this, the picture will keep on becoming more worse,” retail brokerage AvaTrade chief market analyst, Naeem Aslam, said.
MSCI’s broadest index of Asia-Pacific shares outside Japan gave up early modest gains to fall half a percent, putting it on track for an 11%loss this year.
China’s two main share indexes fell 2.6% and 2.9% respectively, with banking shares leading the fall. Hong Kong’s Hang Seng dropped 1%
Japan’s Nikkei, however, rose 0.6%, with soft domestic production and retail data hinting at more pressure on the Bank of Japan to take further steps to stimulate growth.
Brent crude traded at $37.26 a barrel, just over a cent above 11-year lows hit before Christmas.
The fall in oil prices has depressed inflation globally, in turn reducing long-term expectations for price growth that drive longer-dated bond yields. That tends to draw investors back into bond markets at the expense of stocks and pushes up the price of longer-dated government bonds.
German 10-year Bund yields, which set the standard for eurozone borrowing costs, fell 2 basis points to 0.60%.
“Oil prices could be part of this but it’s probably just minor trades that we’re seeing here, we shouldn’t read too much into it,” Rabobank fixed income analyst, Bas van Geffen, said. “Most market participants have already closed their books and small ... [trades] can move markets quite a lot.”
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