By Josie Cox
Oil's persistent slide continued to drive global financial
markets Friday, sending currencies in Russia and Norway to fresh
multiyear lows, and stocks in energy companies tumbling.
In early trade, the ruble surpassed 57 against the U.S. dollar
for the first time. Norway's krone hit a new five-year low against
the euro and an 11-year low against the dollar as Brent crude
slumped to $63 a barrel and West Texas Intermediate settled below
$60--both five-year lows.
Russia's central bank on Thursday raised its key interest rate
to 10.5% from 9.5%, and its deposit rate to 9.5% from 8.5%, in an
attempt to halt the ruble's slide, but economists broadly agreed
that wasn't enough.
"In my view the risk of a full-scale currency crisis is still
high and the Bank of Russia may have to use all tools at its
disposal to stem ruble rout," said Piotr Matys, a currency
strategist at Rabobank. He said he had been expecting a
2.5-percentage-point increase in the key interest rate.
"The decision taken proved insufficient," he added.
The ruble was battered earlier this year by geopolitical
tensions and resulting sanctions, but its decline has been
exacerbated in recent months by the oil shock, especially after the
12-member Organization of the Petroleum Exporting Countries last
month rejected calls for drastic action to cut their output. Around
50% of Russia's annual budget revenue stems from oil and gas
exports.
Norges Bank on Thursday cut its key interest rate to 1.25% from
1.5% to combat slowing domestic growth, specifically citing the
tanking price of oil. Norway is Europe's biggest crude exporter,
and Norges Bank said in a statement Thursday that "activity in the
petroleum industry is set to be weaker than projected earlier."
The Stoxx Europe 600 index was trading 1.5% lower midmorning,
with major losers including Afren PLC, Genel Energy PLC, Tullow Oil
and Petrofac Ltd. London's FTSE 100 index, with a very high
exposure to the oil and gas sector was down 1.4%, putting it on
track for its worst weekly loss in around two years.
The European subindex of oil and gas companies declined 1.8% and
economists said that the chills were starting to filter into debt
markets, too.
"Falling oil prices have sparked weakness in the U.S. high-yield
markets, which amid thin liquidity is intensifying volatility
across fixed income assets," Barclays economists wrote in a
note.
The CBOE Volatility Index, commonly considered a fear gauge of
financial markets, rose 8% overnight, reflecting investors'
appetite for assets considered safest during times of stress. The
yield on German 10-year government bonds hit a record low of
0.652%. Yields fall when prices rise.
Beyond oil, lasting jitters stemming from political uncertainty
in Greece additionally pressured equities.
Earlier in the week, the Greek government announced that
Parliament would vote on a new president on Dec. 17--two months
ahead of schedule--to replace Karolos Papoulias, whose five-year
term was slated to end in March.
The move sparked fears that Greece's radical left opposition
Syriza party could win national elections if presidential voting
rounds fail to find a solution acceptable to all.
"We wouldn't rule out the possibility that mainstream parties
can cobble together the majority needed to win support for a
presidential candidate. Nevertheless, the political outlook for
Greece remains highly fraught," Citigroup economists write in a
note.
Athens's main stock exchanged tumbled 7% on Thursday having
already closed around 12% lower during Wednesday's session. On
Friday it opened lower but later retraced some of that move, to
climb around 0.7%.
The yield on the country's 10-year government bond stood at 8.9%
Friday morning, around 0.08 percentage point tighter on the day.
Only earlier this week, however, it was around 7.2%.
Write to Josie Cox at josie.cox@wsj.com
Access Investor Kit for Petrofac Limited
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB00B0H2K534
Access Investor Kit for Petrofac Limited
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7164731033