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IAA: Oil Price - World Market Analysis
By Kapal Berita
5/10/2000 10:59 am Thu
IAA: WORLD MARKET WRAP UP
October 2nd, 2000
(Updated weekly, every Monday evening)
It was another whopping weak for global equity investor's as stock market fallout could be found almost
everywhere in the major markets. Here in the US, the Dow fell nearly 175 points on Friday to cap off a
week of blue chip volatility. The major European benchmarks were just as mercurial as a continually
depreciating euro continued to spook just about anyone with continental investments.
Euro volatility has been so much on the minds of global equity investors that the central bankers of the G7
nations made a surprise intervention in the currency markets in an attempt to prop up the floundering
money. However, like most government interventions, the G7's actions were symbolic and, for the most
part, in vain. The euro continued its decline shortly after the world's seven largest economies proved their
ineffectiveness against ever strengthening market forces. The euro's fate will remain the same until real
structural reforms are made in Europe's capital, product and labor markets. Cosmetic fixes will never be the
Another blow for the euro came in the form of a referendum in Denmark. The Danes went to the polls last
week and voted to remain out of the Economic and Monetary Union (EMU) that would have made the euro
Denmark's official currency. The case of euro adoption is a matter of when, not if, however this delay was
an embarrassment for the European countries already in the eurozone. It appears for some that there is no
light at the end of the tunnel.
There was more government intervention in the market last week other than the purchase of euros by the
G7. The US government intervened in the oil markets by releasing 30 million barrels from its strategic oil
reserves- a hotly debated move. As a result, oil fell to US$31 a barrel, still high by historical standards.
European governments, who are feeling the heat from an inflated oil price more so than their US
counterparts, are considering releasing some of their own strategic reserves as well. Unlike the
collaboration of the G7 nations to buttress the euro, a concerted effort by G7 nations to lower the price of
oil may have a real effect, as the price of oil is strictly reflective of its supply and demand, unlike the euro.
Asia was not immune to turbulence as the markets in the east fell in lock step to their western counterparts.
Japan, however, was relatively stable for the week as the prospect of a weaker yen, which fell to a
six-week-low, could boost the earnings of Japanese exporters. The Japanese economy is still gaining
strength after its long dormancy but a 0.8% decline in September vehicle sales is evidence that the world's
second largest economy isn't quite yet soaring towards a full recovery.
Across the region Asian computer stocks fell over the week, led by Fujitsu and Samsung, after Apple's
warning that its earnings would be less than analysts expected. The overall pessimism over new technology
stocks is sure to continue for a while as the prospects for other computer companies announcing
disappointing earnings continue.
The markets in Latin America became increasingly volatile as the week progressed. Mexico, in particular, had
a tough time as a slightly wider then predicted trade deficit added a touch of additional fear. The one
positive thing that Latin America has going for it currently is a high oil price. The major Latin American
economies of Mexico, Brazil and Argentina all export petroleum products. A high oil price bolsters
government revenues and solidifies the financial foundation of the respective economies.