Global markets slide on oil price drop; India may follow

Asian markets dropped near their weakest levels in three weeks on Tuesday as oil sinks to seven-year low

Markets are likely extend Monday’s fall in trade today led by a fall in oil prices that saw Asian markets indices drop to near three-week low.

Asian markets dropped near their weakest levels in three weeks on Tuesday, as a rout in oil prices to near seven-year lows knocked global energy company shares and commodity currencies. At 8:10am Indian Standard Time (IST), the SGX Nifty was trading 0.7%, or 56 points lower at 7,758 levels.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4%, erasing all the gains made so far this month, with resource-heavy Australian shares leading decline with a fall of 0.9%.

Japan's Nikkei bucked the trend, rising 0.3%, after revised data showed Japan had dodged a recession in the third quarter, with GDP up an annualised 1%, compared to a preliminary reading of a 0.8% fall.

OIL PRICES

Global oil benchmark Brent crude futures dropped 5.4% to $40.66 per barrel on Monday, after the Organization of the Petroleum Exporting Countries' (OPEC) policy meeting on Friday ended without an agreement to lower production. 

Keeping production at near record levels in an oversupplied market has spooked investors grappling with reduced demand from China, the world's biggest energy consumer. The focus now shifts to China's trade data for November due later in the day.

US MARKETS

Overnight, the Dow Jones industrial average fell 117.12 points, or 0.66%, to 17,730, the S&P 500 lost 14.62 points, or 0.7%, to 2,077 and the Nasdaq Composite dropped 40.46 points, or 0.79%, to 5,101.

Stock investors were also wary after Friday's November employment report intensified expectations that the economy would be strong enough to absorb an interest rate hike when the Federal Reserve meets on December 15-16.

VIEW ON INDIA

Back home, markets closed lower for the fourth session closing near three-week low on Monday with ITC contributing the most to the decline after Arvind Subramanian-led GST panel suggested tobacco products, including cigarettes, will be taxed at 40%. The taxation is over 25% value added tax (VAT) already charged on current products. The Sensex lost 108 points to end at 25,530 and the Nifty shed 17 to close at 7,765.

"Nifty continued to remain under pressure losing 0.21% to register fourth consecutive session of loss. Despite opening on a positive note on back of global cues, selling pressure pulled the index down to lower lows thereby breaching the 3-month upward sloping trend line and closing under. Momentum oscillator MACD is on the verge of rolling over whereas other indicators are signaling a bearish bias but the hourly indicators are in oversold territory and showing positive divergence that can produce a pullback rally," points out a morning note from Edelweiss Research.

"Volatility (India VIX) is trading near 16% levels and is expected to trend upwards along with its global peer CBOE VIX ahead of the mid-December US Federal Reserve meeting where they are widely believed to lift-off the interest rates. Nifty is critically poised near its final support at 7750-7715, below which the bearish structure will take precedence and can expect a re-test of September lows of 7539. Meanwhile the upside remains capped at 7967 (50 DEMA) in the near future," it adds.
 

with Reuters inputs