By Josie Cox
Oil's persistent slide continued to spur global financial market
losses Friday, sending currencies in Russia and Norway to fresh
multiyear lows, and stocks in energy companies tumbling.
The ruble surpassed 57 against the dollar for the first time on
record Friday morning, while Norway's krone hit a new five-year low
against the euro and an 11-year low against the dollar as Brent
crude slumped below $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
effort to halt the ruble's slide. However, economists broadly agree
such a move isn'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."
Strategists at Sberbank also said that they weren't convinced
that the rate increase would have a significant impact.
"Unless the Central Bank decides to step in with bolder actions,
we wouldn't expect its policy adjustments to alter the ruble's
trajectory," they write in a note.
The ruble was battered earlier this year by geopolitical
conflict and resulting sanctions, but its decline has been
exacerbated in recent months by the oil-price 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.
Also on Thursday, Norges Bank 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 that "activity in the petroleum industry is
set to be weaker than projected earlier."
The Stoxx Europe 600 index was trading 1.3% lower early in the
afternoon, with major losers including Afren PLC, Genel Energy PLC,
Tullow Oil and Petrofac Ltd.
London's FTSE 100 index, which has a very high exposure to the
oil and gas sector, was down 1.3%, putting it on track for its
worst weekly loss in around two years. In the U.S., the S&P 500
dropped 0.2% after the open.
The European subindex of oil and gas companies declined 1.7% and
economists said the downward pressure was 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
0.631%. Yields fall when prices rise.
Beyond oil, lasting jitters stemming from political uncertainty
in Greece also pressured equities.
Earlier in the week, the Greek government announced that the
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 failed 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
trade flat on the day.
The yield on the country's 10-year government bond stood at 9%
Friday afternoon. Only earlier this week, it was around 7.2%.
In currency markets, the euro was around 0.4% higher against the
dollar at around $1.2445, little changed after figures showed that
factory output across the 18 countries that share the euro rose for
the second straight month in October, albeit at a modest pace.
Employment and industrial production, however, remain well below
their precrisis levels and there is no sign the eurozone's recovery
is set to accelerate to a pace that would quickly create large
numbers of new jobs, or end a long period of very low
inflation.
Many analysts expect the European Central Bank to announce a
government bond purchase plan to stimulate the recovery as early as
Jan. 22, when it next meets. Such a prospect was reinforced by weak
demand for the ECB's second installment of a four-year lending
program for banks. Results for that were published Thursday.
"Industrial confidence has improved a bit in the eurozone,
however, with the economy running well below capacity and inflation
likely to fall further, we continue to look for a major
quantitative easing announcement in January," currency strategists
at BNP Paribas write in a note.
They also reiterate their recommendation of selling the euro
against both the U.S. dollar and the British pound.
--Paul Hannon contributed to this article
Write to Josie Cox at josie.cox@wsj.com
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