-- The author is a Reuters Breakingviews columnist. The opinions expressed are her own --
By Agnes T. Crane
NEW YORK (Reuters Breakingviews) - It was almost a slow-motion echo of the flash crash exactly a year ago. As then, Thursday’s plunge in the oil price to under $100 and the continued slide in silver and other commodities reflected not one factor but many. With Federal Reserve policy stoking speculation, U.S. data suggesting another slowdown and Europe running at two speeds, more volatile trading may be the logical response.
U.S. WTI oil futures fell 10 percent to $99 a barrel. And after a rollicking start to the year, silver has dropped nearly 30 percent this week, its worst run since the 1980s. Other markets moved in sympathy, with the S&P 500 Index slipping 1 percent and Treasury yields hitting their lowest levels of the year.
Unlike the global market dip in March after Japan’s huge earthquake and tsunami, there’s no single big event to explain the latest commodities rout. Second-tier U.S. data, including jobless claims figures on Thursday, have lately suggested a new soft patch in the world’s biggest economy -- but investors usually take more heed of the main event, Friday’s employment report.
Lower oil prices should make it less likely that U.S. growth suffers further. But there’s a somewhat ironic tension as the Fed’s efforts to keep credit flowing cheaply also have a tendency to boost commodity speculation. That effect was evident with silver, which sold off this week partly because margin requirements were lifted sharply.
If investors were swinging from optimism toward a less rosy outlook, the European Central Bank didn’t help, holding interest rates flat on Thursday and offering little to suggest an increase next month. That hit the euro particularly hard. But even as Greek and Portuguese debt problems continue, the big German economy is on a roll, making the European outlook a headscratcher for investors, too.
All that said, panic wasn’t in the air. And there’s an element of self-correction. American stagflation has been at least at the back of many investors’ minds for months now. If the price declines stick, both the “stag” and “flation” parts of the story should get less scary. If only the same could be said about volatility. With big chunks of the world in still fragile health, a bit more of that is probably overdue.
-- WTI crude oil futures fell 10 percent by late afternoon in New York on May 5 to $99 a barrel, as diving commodity prices in recent days and data pointing to weakness in the U.S. economy weighed on financial markets. Brent crude futures settled down 9 percent to $110.80 a barrel.
-- Silver futures also fell more than 10 percent to $34.66 per ounce, making their biggest one-day decline since 1980. Thursday’s drop brings the total decline for the week to nearly 30 percent. Gold, meanwhile, fell about 3 percent to $1,474.
-- The S&P 500 Index and the Dow Jones industrial average were off around 1 percent, while the 10-year Treasury yield, at 3.15 percent, hit its lowest point this year.
-- Risk aversion also boosted the dollar and the yen. The euro had its worst day since August last year after the European Central Bank president suggested a rate hike was unlikely next month.
Editing by Richard Beales and Martin Langfield