GLOBAL EQUITIES were heading yesterday for their worst first-half performance in 26 years after a week when oil surged to a fresh record and there were renewed worries about the health of the financial system and global growth.
A high of $142.54 (€90.30) a barrel for oil yesterday sparked a tumble in Asian markets and selling in Europe. A further increase to $142.93 was driving US stocks down last night.
Evidence of renewed financial stress as banks prepare to close out the second quarter and report earnings next month is also fanning fears.
Yesterday, the MSCI world equity index had fallen 11.7 per cent since the start of the year, its worst first-half run since a decline of 13.8 per cent during the first six months of 1982.
In Europe, the FTSE Eurofirst was 21 per cent lower for the year, its worst first-half performance since the index was configured in 1986. The FTSE 100 has fallen 14.4 per cent in 2008, its worst start since a decline of 14.6 per cent in 1994.
The SP 500 has lost 12.5 per cent in the year to date, its poorest first half since the benchmark fell 13.8 per cent in 2002.
Dublin's Iseq is down 24 per cent since the start of the year, although it managed to close in positive territory yesterday.
"There is a tremendous amount of uncertainty, and while we knew the first half would be bad, hopes for a rebound in the second half are not looking so good," said Anthony Conroy, head of trading at BNYConvergEx. "High oil prices are adding to inflation and hurting economic growth, while no one really knows how much more banks will write down."
Oil has climbed 48 per cent this year and may extend gains if the European Central Bank (ECB) boosts rates on July 3rd, further weakening the US currency.
"The weak dollar has been pushing prices higher, and you are seeing more money shifting from equities into commodities," said Tom Bentz, a broker at BNP Paribas in New York. "The market may take a rest after breaking through $142 for the first time, but by no means does that mean the rally is over."
Oil prices are heading for the biggest quarterly gain since the first three months of 1999, when oil traded between $11 and $17. Yesterday, Opec's president said prices may reach between $150 and $170 within months.
"I don't know when this rally will end because there are too many folks in the finance community betting on prices to rise," said Rick Mueller, director of oil practice at Energy Security Analysis in Wakefield, Massachusetts.
"Gains have nothing to do with the physical market."
Gloom in the markets was reflected yesterday in new data on euro-zone economic sentiment, which recorded a sharp drop for June. The European Commission's economic sentiment indicator fell to 94.9 points from May's 97.6, which some economists said signalled a slowdown in annual economic growth to 1.3 per cent in the second quarter, from 2.2 per cent in the first.
Separate reports showed retail sales dropped at the second-fastest pace in four years, while inflation accelerated in Germany and Spain. Economists expect inflation may still rise higher before it starts to ease back towards the European Central Bank's target in late 2009. - (Reuters/Bloomberg/ Financial Times service)
