Oil prices and the pound slumped yesterday as markets mulled global demand prospects and heightened Brexit tension.
The price of benchmark US oil was 7% lower while Brent crude, the European standard, shed 4.7%.
Across Europe, London’s FTSE 100 fell 0.1% to close at 5,930.30 points; Frankfurt’s DAX 30 was down 1.0 % at 12,968.33, while Paris’ CAC 40 lost 1.6% at 4,973.52.
Sterling slumped close to a one-month low against the dollar as investors fretted over heightened Brexit tensions ahead of crunch trade talks between London and Brussels.
Oil prices have begun a steady decline as the coronavirus pandemic weighs on the outlook for demand.
“It is getting very ugly in the energy space as the revised base case scenarios for a return to a pre-pandemic crude demand levels keeps getting pushed back,” remarked Oanda analyst Edward Moya.
The pound dropped more than 1.0% versus the greenback to $1.3022 — a level last seen on August 12 — before edging back slightly.
The pound began its fall Monday after Prime Minister Boris Johnson revived the prospect of a no-deal Brexit, saying that if an EU trade deal was not struck by October 15 then there would not be one. In New York, US tech stocks took a battering as traders came back from a long weekend.
About two hours into trading, the Dow Jones Industrial Average was down 1.5% while the tech-rich Nasdaq Composite Index lost 2.6 % for a third straight decline.
“US stocks resumed their slide, with tech leading the plunge as investors scramble for the sidelines for a plethora of reasons: US-China tensions boil, high fliers such as Apple and Tesla are still overextended, and on fears that the US and world are about to see the worst from Covid-19,” Moya said.
Sterling fell following confirmation that the head of the UK government’s legal department has resigned over Johnson’s last-minute changes to Britain’s EU Withdrawal Agreement.
Northern Ireland Secretary Brandon Lewis admitted that the changes break international law in “tightly defined circumstances”.
The eighth round of negotiations resume this week, with both sides talking tough as the end of a one-year transition period approaches.
“It looks like the wheels of the Brexit bus are finally falling off, as news of the head of UK government legal (department) resigns,” said analyst Sebastien Clements at international payments company OFX.
Asian stocks had ticked higher following steep drops last week, as investors brushed off US President Donald Trump’s latest anti-China salvo.
Despite continued uncertainty about the timetable for economic recovery — and with no Covid-19 vaccine yet available — investors remain convinced central banks around the world are willing to play backstop and keep monetary policy supportive for years to come.