Scoreboard: Oil slump

A further drop in oil prices sparked falls on European and US markets, while the Australian dollar lost more ground.

In US economic data, the ISM services index eased from 59.3 to 56.2, below the forecast of 58.0. Factory orders fell 0.7 per cent in November, a slightly larger decline than the 0.5 per cent expected fall. And the Redbook survey of weekly chain store sales was up 4.3 per cent in the latest week compared with a year ago, down from the 5.4 per cent annual gain in the previous week.

European shares eased again on Tuesday, selling off in late trade. Falling oil prices weighed on energy producers and there were further jitters about the outlook for Greece. The FTSEurofirst 300 index fell by 0.7 per cent with the German Dax flat (down 3.5 points) and the UK FTSE down by 0.8 per cent. In London trade shares in BHP Billiton rose by 0.6 per cent while Rio Tinto rebounded by 2.1 per cent.

US sharemarkets fell again on Tuesday. Economic data was weaker-than-expected, lower oil prices weighed on energy stocks and investors continued to fret about the European economy. At the close of trade, the Dow Jones was lower by 130 points or 0.8 per cent, after earlier being down 239 points. The S&P 500 index was down by 0.9 per cent and the Nasdaq was down by 60 points or 1.3 per cent.

US longer-term treasuries rose sharply again on Tuesday (yields lower). Another fall in the oil price and weaker-than-expected economic data prompted buying of Treasuries, especially given further weakness in equities. US two-year yields fell by 4 points to 0.633 per cent while US 10-year yields fell by 7 points to 1.966 per cent.

Major currencies were again mixed against the greenback in European and US trade on Tuesday. The euro fell from highs near $US1.1970 to lows near $US1.1885, and was around $US1.1920 in afternoon US trade. The Australian dollar fell from highs near US81.55c to lows around US81.00c and was trading near US81.10c in afternoon US trade. And the Japanese yen lifted from 119.38 yen per US dollar to ¥118.06 before settling near ¥118.60 in afternoon US trade.

World oil prices fell for a fourth straight day on Tuesday. Saudi Arabia has given no signs of cutting production with King Abdullah saying that the country will meet the challenge of low oil prices “with a firm will”. Saudi Arabia has also announced oil price discounts for European and US buyers. Brent crude fell by $US2.01 or 3.8 per cent to $US51.10 a barrel, while the US Nymex crude price fell by $US2.11 or 4.2 per cent to $US47.93 a barrel.

Base metal prices were generally little-changed on the London Metal Exchange on Tuesday. The exceptions were aluminium (down 1.8 per cent) and tin (up 1.4 per cent). Gold rose on Tuesday as investors continued to embrace safe-haven assets. The Comex gold futures price was up by $US15.40 an ounce or 1.3 per cent to $US1,219.40 per ounce. Iron ore rose by US30c to $US71.10 a tonne on Tuesday.

Ahead: In Australia, the Performance of Services index is released. In the US, trade data is expected together with the ADP employment report and the minutes of the last Federal Reserve meeting.

Craig James is chief economist at CommSec.