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Global stocks drop on commodities rout
[NEW YORK] The global commodities rout throttled world stock markets Tuesday, with mining companies retreating on news of massive layoffs at mining giant Anglo American and oil prices hitting fresh multi-year lows.
A global sell-off began in Asia following weak Chinese trade data and deepened after Anglo American unveiled what it billed as a "radical" restructuring in response to weak commodity prices.
Equity markets in Paris, London and Frankfurt lost between 1.4 and 2.0 per cent, while the broad-based S&P 500 in the US shed 0.7 per cent.
In foreign exchange activity, the euro edged higher against the dollar.
"It is a complete rout in the commodities segment and that's troubling to the market," said Mace Blicksilver, director of Marblehead Asset Management.
"The question is where is it coming from? Is it an OPEC supply issue, or is it a China problem?" Anglo American said it would slash its staff by almost two-thirds, by 85,000 jobs, after 2017. The company added it would further cut investment through to the end of 2016 by about $1.0 billion (921 million euros). It will also suspend its dividend payments until the end of next year.
"While we have continued to deliver our business restructuring and performance objectives across the board, the severity of commodity price deterioration requires bolder action," said Anglo American chief executive Mark Cutifani.
Shares of Anglo American plunged 12.3 per cent. Mining rivals Rio Tinto and Glencore, steel giant ArcelorMittal and aluminum producer Alcoa all fell sharply.
Petroleum-linked shares were also on the defensive with US giant ExxonMobil, and oil services titans Weatherford International and Technip falling as Brent oil prices dipped below US$40 a barrel for the first time in almost seven years.
US benchmark West Texas Intermediate for January delivery shed 14 cents to close at US$37.51 a barrel, its lowest closing price since February 2009.
The oil sell-off continued from Friday, when the Organization of the Petroleum Exporting Countries took no action on production to address a supply glut that has depressed prices for more than a year.
"It seems that whatever happens, Opec will not budge and yet again have reiterated their stance that the markets will undo this mess themselves," said James Hughes, chief market analyst at GKFX.
Gregori Volokhine, director of Meeschaert Capital Markets, said the broader stock market may be overreacting to the pullback in oil, given the drop in prices is due in part to oversupply from OPEC and is not clearly the result of falling demand.
"If it's not a problem of weak demand, why should the effect be so negative on markets?" he asked.