China’s economic slowdown in the recent months has affected the global economy significantly. The slowdown reduced China’s commodity buying power with oil being the worst hit. Prices of oil have been falling rapidly due to the global economic downturn, production of shale oil by the US, and the lifting of trade sanctions on Iran. Currently, Brent oil is retailing at record low prices because of increased supply with a significant reduction in demand.
Shares in Europe and Asia have been falling in February. Recently, Saudi Arabia categorically stated that they do not support oil output cuts by major producers resulting in a dip in the oil prices. The announcement led to a majority of the investors buying low-risk assets like the Japanese Yen and gold. Moreover, top-rated government bonds are in high demand with the current market sentiments inclined to heightened concerns about the weak global economic growth.
The mixed reactions in the Asian shares, oil retreat as Saudi plays down output cuts, China’s stalling economic growth rate are the major headline providers currently. The low-risk market sentiments have increased appetite for the Japanese Yen, a safe haven currency, enabling it to hit three-year highs against the Euro. The Sterling pound shed some percentage against the US dollar with the announcement that Britain is considering to leave the European Union with a referendum set for June 2016.
The current European Union uncertainties have also dragged the value of the Euro lower leaving the Japanese Yen as the chief haven for the market investors. The Pan-European share prices have fallen gradually resulting from the lower prices of commodity-related stocks. It is evident that the current market share prices are affected significantly by the falling prices of commodities. The Tokyo Nikkei index is trading lower as a result of a stronger Yen and lower oil prices.
Though the Saudi Oil minister was confident that more oil producing countries would join the agreement to cut output, he believes that Iran will not join in that union. After the sanctions have been lifted, Iran is determined to regain its place as a major oil producer and exporter. The sustained low oil prices have caused fears and uncertainties that shale oil producers in the US will be forced into bankruptcy.
The yields on the lowest-risk government bonds have been pushed down by the significant fall in stocks and oil prices. Copper prices have also been falling there is reduced demand from the top consumer that is China while gold continues to maintain its high price in the markets since it is a safe haven commodity for investors.
Therefore, the Announcement by the Saudi oil minister has continued to raise fears and concerns in the markets.