This week’s percentage drop in the oil price is the largest since March 2003

Global markets: Weekly overview

5 December 2008

After healthy gains last week, US investors preferred to take the profits on Monday, when benchmark indices plunged more than 8% on growing concern the global economic slump is deepening and consumers’ access to credit is shrinking. A mid-week rally petered out and the downtrend reasserted itself on Thursday and Friday, as worries over global economy weighed on stocks and on the oil price in particular.

European stocks followed a similar pattern, although losses on Thursday were smaller than they might have been, as the Bank of England, the European Central Bank and the Swedish central bank cut their base rates. The Bank of England cut its key rate to 2%, the lowest level since 1951 and as low as it has been since the formation of the bank in 1694; the ECB reduced its benchmark lending rate by 75 basis points to 2.5% and the Swedish central bank reduced rates by a record 175 basis points to 2.0%.

Crude oil fell 20% during the week after the OPEC deferred a decision to reduce output until its next meeting on December 17 and bearish forecasts of further drops in price were published. This week’s percentage drop in the oil price is the largest since March 2003. This weighed heavily on the Russian market, which fell every day in dollar terms this week. The dollar-denominated RTS Index lost approximately 10%, almost fully erasing the gains of the previous week. The Ruble returns were better, but that reflected a continued weakening against both the Euro and the Dollar. The corridor in which the ruble trades against the Euro/Dollar basket was once again widened on Friday, allowing the fourth one per cent depreciation in a month.

Source: Troika Dialog

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