Brent crude oil dropped more than 3.5% to $67.53 a barrel before recovering to trade around $71.80, as last week’s decision by the Organization of the Petroleum Exporting Countries to leave its output target unchanged continued to rattle markets.
Compared with the 13% drop in Brent crude last week, and the particularly abrupt slide on Friday, oil prices were relatively steady Monday but the repercussions of the last week’s move remained intense.
The Russian ruble, closely linked to oil because energy accounts for a big portion of the country’s exports, slumped to a fresh record low of 53.90 to the dollar, more than 5% weaker on the day. Later, the currency picked up from its weakest levels, amid signs of moderate dollar sales by the central bank, according to traders.
The slide in oil is “reinforcing the loss of investor confidence in the ruble,” which has also been beset by concerns over Western sanctions against Russia and the conflict in Ukraine, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ.
Piotr Chwiejczak, an emerging-market strategist at BNP Paribas said that he was surprised that Russia’s central bank had not defended the 50 ruble per dollar mark more fiercely. “I still think that capital controls are pointless but I do think that interest rates need to be a lot higher,” he said.
The Nigerian naira also fell to a fresh record low against the dollar, but other energy-linked currencies proved more resilient, with the Canadian dollar and Norwegian krone rising, having fallen sharply on Friday.
Elsewhere, Stock markets felt the effects of the recent falls in energy prices. In Europe, the Stoxx Europe 600 ended the session 0.5% lower.
Additionally, markets were also weighed down by manufacturing data for the eurozone showing a slower-than-expected pace of expansion in November. Similar data from China also disappointed.
In the U.S., the S&P 500 was trading 0.9% lower and the Dow Jones Industrial Average was down 0.4% in late European trade, with traders citing weak retail figures for the Thanksgiving weekend.
Retail spending over the Black Friday weekend fell 11%, according to the main industry trade group, a sign that early deals are losing their allure. Separately, data on the U.S. manufacturing sector showed a modest slowdown as well.
Gold prices were also volatile Monday. They initially dropped after Swiss voters rejected a proposal to increase the central bank’s gold holdings. The initiative would have forced the country’s central bank to hold one-fifth of its assets in gold.
Gold fell by 1.7% to $1,155.20 a troy ounce in early European trade before recovering to $1,197.50 an ounce.
Helping offset the pressure on the precious metal after the Swiss vote, India lifted its trade restrictions on gold imports with immediate effect. Given the move by one of the top gold importers, analysts at Barclays said they “expect the floor for gold prices to firm”.
Elsewhere, a downgrade of Japan’s credit rating by Moody’s Investors Service only briefly dented the performance of the yen, which quickly rebounded from a seven-year low against the dollar to rise 0.2%. Although a rating cut often hurts a country’s currency, the yen tends to rise in times of market stress because it is seen by investors as a safe haven.
Brendan Brown, head of economic research at Mitsubishi UFJ Securities International, also said that the Moody’s move was largely priced in and that the muted market reaction was therefore not surprising.
There are many reasons to be worried about Japan but this credit rating cut is certainly not one of them,” he said.
The Nikkei stock index had closed for the day before the announcement, up 0.8% at a seven-year high.
Back in Europe, investors are looking ahead to Thursday’s European Central Bank meeting, with expectations building that officials will signal a strong intention to expand their asset purchase program to try and boost anemic rates of inflation and jump-start a flagging economy.
Weakness in commodities has acted as a drag on prices, piling further pressure on central bankers in the eurozone and elsewhere to take action.
“The immediate focus will remain on cheaper oil; good news for consumers and for those companies benefiting from reduced input cost pressures, less so for central bankers wrestling with disinflationary concerns,” said Ian Williams, an economist and strategist at brokerage Peel Hunt.
Government bonds in the eurozone hit fresh record highs amid expectations of further ECB easing. Germany’s 10-year yield dipped just below 0.7% in early trade, a new low. Yields fall as prices rise.