World Economy

Volatile Oil Drags Stocks, Currencies Lower

Volatile Oil Drags Stocks, Currencies LowerVolatile Oil Drags Stocks, Currencies Lower

Emerging stocks suffered their steepest one-day fall in nearly four weeks on Tuesday and currencies came under pressure after oil prices extended losses following an overnight tumble.

MSCI’s emerging market index fell 0.5%, pulling back from near-12 month highs hit in the previous session, with stocks in Russia, South Africa and Turkey all in the red, Reuters reported.

Currencies, some of which had a strong start to the week, fared little better with Turkey’s lira and South Africa’s rand weakening 0.3% against the greenback, despite a similar retreat in the dollar index.

Recent data showed growth eased in the eurozone last month, with global manufacturing data from factories in China, Japan and elsewhere in Asia offering only modest comfort and dampening hopes that demand would improve for metals and oil.

The tepid growth data and oversupply concerns sent US crude prices crashing below the key $40 per barrel mark on Monday while copper prices also fell.

Fund managers predicted more volatile times ahead. “Emerging economies are still set on an improving trend,” analysts at asset manager Unigestion wrote in a note to clients, adding they expected both emerging and developed markets to go through a “subtle mix between periods of growth and market stress” in the third quarter. “Political risks and the potential hiccups in the Chinese situation are two potential drivers of market stress episodes.”

 Polish Optimism

Assets across emerging Europe were also under pressure with the exception of Poland where stocks rose 0.8%, while the zloty strengthened 0.1% against the euro. Polish assets were lifted by optimism that a much-awaited bill to solve the problem of Swiss franc denominated loans would harm banks less than expected with the Polish government due to present a draft bill on the mortgages later in the day.

However, Hungary’s forint weakened 0.3% against the euro following three days of gains. Analysts noted that manufacturing data had undershot expectations in both Poland and the Czech Republic.

Meanwhile, the euro rose above $1.12 for the first time in more than a month on Tuesday while a cut in Australian interest rates failed to weaken the Australian dollar as the fallout of poor GDP data continued to weigh on the US currency.

The yen hit its strongest in three weeks, pushing past 102 yen per dollar for the first time since early July after Japan’s cabinet approved a package of spending including $132 billion in new fiscal measures.