World shares fall on China, oil uncertainty

Traders Fred DeMarco, left, and Greg Mulligan work on the floor of the New York Stock Exchange. File photo / AP

Equities on both sides of the Atlantic fell overnight after a worse-than-expected trade report on China fuelled concern about weakening global economic growth, at a time when the US Federal Reserve is widely expect to start hiking its target interest rate.

Oil prices, still reeling from Friday's decision by OPEC to keep production at current excess levels at a time of increasingly questionable demand, recovered after touching a seven-year low earlier in the day.

West Texas Intermediate for January delivery last traded at US$37.83 a barrel on the New York Mercantile Exchange after earlier falling as low as US$36.64, while Brent last traded at US$40.71 on ICE Futures Europe, after earlier sliding below US$40.

"OPEC has lost control of the oil market and unless something fundamental changes that causes demand to overtake the oversupply in the market, the path of least resistance is the 2008 lows of US$35-US$38," Michael Hewson, chief market analyst at CMC Markets, told Reuters.

Data showed China's exports weakened more than expected in November, while imports declined for a record 13th straight month. That doesn't bode well for commodity prices and shares of commodity producers.

"China is moving more toward consumption and, in this transition, it is the miners that get hurt the most," Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich, told Bloomberg. "As long as economic data disappoint you are going to have reactions like this."

The commodity slump is taking its toll. Morgan Stanley will take a severance charge of about US$150 million in the fourth quarter, Bloomberg reported, citing a person briefed on the matter. The charge will cover the cost of cutting 1,200 workers worldwide, including about 470 traders and salespeople in its fixed-income and commodities business. Morgan Stanley shares last traded 1.9 percent lower.

Meanwhile, Anglo American announced broader cost cuts as it seeks to pare down the company, lowering assets by 60 percent and its workforce to about 50,000 from 135,000. It also suspended its dividend. Shares of Anglo American sank 12.3 percent in London.

"Together with the additional material capital, cost saving and productivity measures announced today, we are setting out an accelerated and more aggressive strategic restructuring of the portfolio to focus it around our 'Priority 1' assets, being those assets that are best placed to deliver free cash flow through the cycle and that constitute the core long term value proposition of Anglo American," Mark Cutifani, Chief Executive of Anglo American, said in a statement.

"While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action," Cutifani noted.

The market is already on tenterhooks for next week's meeting of the Federal Open Market Committee which is widely expected to lift its key rate for the first time since 2009.
"The market is expecting a rate hike and the Fed will reintroduce uncertainties and lose credibility if they fail to raise rates," Ryan Larson, head of US equity trading at RBC Global Asset Management in Chicago, told Reuters.

In 11:52am trading in New York, the Dow Jones Industrial Average dropped 0.9 percent. In 11.37am trading, the Standard & Poor's 500 Index fell 0.6 percent, while the Nasdaq Composite Index fell 0.3 percent.

Slides in shares of Caterpillar and those of Boeing, last trading 2.5 percent and 2.3 percent lower respectively, led the decline in the Dow.

In Europe, the Stoxx 600 Index finished the day with a 1.8 percent drop from the previous close. The UK's FTSE 100 Index slid 1.4 percent, France's CAC 40 Index gave up 1.6 percent, while Germany's DAX Index declined 2 percent.