The U.S. markets fell lower on Tuesday morning as falling oil prices continued to weigh on global stock trading.
By Paolo Palazzi-Xirinachs
Tuesday, February 2, 2016
Near midday in New York City, the Dow Jones had fallen 1.64%, while the S&P 500 declined 1.64%. The Nasdaq index also dropped 1.62%. Investors have been concerned about a China-led global economic slowdown, tepid U.S. economic data and the pace of rate hikes by the Federal Reserve.
It is a busy week on the economic data front, particularly in the U.S., where the week will end with monthly payroll figures on Friday. So far, the numbers released have not impressed investors. On Monday, the Institute for Supply Management said its gauge of factory activity pointed to a contraction, while China’s official survey found that manufacturing had fallen to its lowest level in more than three years.
These two reports seemed to weigh heavily on oil prices, and the selling pressure continued today. Benchmark United States oil was down $1.24 to $30.38 a barrel on the New York Mercantile Exchange, a day after it plunged nearly 6%. Brent crude was down $1.12 to $33.12 a barrel in London. Energy companies, as has been the case for several weeks now, followed suit and saw their stocks drop lower. Exxon Mobil shares fell 2.5%, and shares of Chevron fell 3.4%.
The global economy relies more on oil-rich nations for growth. For the last 75 years, almost every economic crisis has been preceded by an oil price spike. The worry now is that low energy prices are pushing the global economy into a tailspin.
While that idea is counter-intuitive, it’s gaining traction – because a growing share of the world’s consumers and investors are in the very places getting hammered by the rout in commodities prices. Apple Inc., for example, blamed weaker sales last quarter on lower economic growth in some oil-rich countries. Oil exporters are facing diminishing returns and may have to cut spending significantly, which would have a further impact on global economic growth.
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