Euro hits 9-year low as Brent oil goes below $50

Investors rush to safe haven sovereign debt

The euro hit a nine-year low on Wednesday, as collapsing oil prices and worries about the global economy drove investors to safe-haven sovereign debt.

From Japan to Germany to Australia, government borrowing costs fell to all-time lows, as oil fell 10 per cent in just two days. On Wednesday, Brent crude oil fell below $50 a barrel, the first time since May 2009, hammered by a growing supply glut and weak global demand.

“There’s surplus production of 1-1.5 million barrels a day this year and there’s absolutely no sign the Organization of the Petroleum Exporting Countries will intervene to cut production at a time of lower demand,” said Bjarne Schieldrop, chief commodity analyst at SEB, Oslo.

The slide in oil prices has increased fears of deflation, which in turn has further clouded the demand outlook.

Nobuyuki Nakahara, a former oil executive and ex-member of the Bank of Japan’s policy board, said, “Oil prices are likely to keep falling due to slower Chinese growth and because the years of prices above $100 before the recent plunge were abnormal historically…I won’t be surprised if the price falls to as low as $20/barrel.”

In India, the BSE Sensex and the National Stock Exchange Nifty fell to their lowest in about three weeks, as stocks favoured by foreign investors declined, following heavy sale by these investors in derivatives and cash shares in the previous session.

On Wednesday, the Sensex fell 0.29 per cent to close at 26,908.82, while the broader Nifty ended 0.31 per cent lower at 8,102.10.

While ICICI Bank lost 2.7 per cent, Tata Motors fell 1.5 per cent.

However, energy stocks gained. Reliance Industries rose 2.2 per cent, while Oil and Natural Gas Corporation closed 1.5 per cent higher.

European stocks opened higher, after Asian ones just about managed to hold in positive territory. But nervousness ran deep through all financial markets ahead of euro zone inflation data due later on Wednesday. The figures are expected to show the first annual fall in consumer prices since 2009, exerting pressure on the European Central Bank (ECB) to launch all-out quantitative easing at its next policy meeting on January 22.

But despite the growing threat of deflation, the ECB might be reluctant to act before general elections in Greece on January 25, a vote which some say could hasten the country’s exit from the euro zone if the left-wing Syriza party wins.

“Given the fact that Greece will not have an official government in place at that time, the ECB might have to wait,” said Marshall Gittler, head of global forex strategy at IronFX. “The euro has not been able to sustain any rallies this year and so, looks chronically weak.” The euro fell to $1.18, in anticipation of more money-printing by the ECB. In early trading in Europe, the currency was down slightly from the previous day’s $1.19.

The dollar fared better, bouncing to 119.15 yen from a low of 118.04 touched on Tuesday.