Stocks fell across the world as investors shied away from commodities, unnerved by a Goldman Sachs report saying it's time to cash out of certain markets and rattled by news about Japan's nuclear disaster.
Oil fell as low as $107.87 (U.S.) a barrel after the Goldman report, which advised investors to lock in profits before oil and other commodity markets reverse. It came as the International Energy Agency warned that strong crude oil prices are denting demand growth and prices could ultimately self-regulate through a global economic slow-down.
In the report, Goldman commodities strategist Jeffrey Currie advised closing the long commodities trade. Goldman has long been bullish on commodities and is Wall Street's largest commodities dealer by revenue.
"Although we believe that on a 12-month horizon the [crude oil, copper, cotton, soyabean and platinum]basket still has upside potential, in the near term, risk-reward no longer favours being long the basket and we are recommending closing the position [opened in December]for a 25 per cent return versus a 28 per cent target. While crude oil, cotton and copper prices have substantially exceeded our targets, platinum and soybean prices have lagged," he wrote.
"Although potential contagion risk in the Middle East and North Africa remains elevated and has pushed prices above $125 a barrel, at these price levels the risks are becoming more symmetric, which shifts the risk/reward of being long oil. Not only are there now nascent signs of oil demand destruction in the United States, but also record speculative length in the oil market, elections in Nigeria and a potential cease-fire in Libya that has begun to offset some of the upside risk owing to contagion, leaving price risk more neutral at current levels."
Three-month copper on the London Metal Exchange fell about 1 percent. Gold slipped nearly half a percent, and silver was off a 31-year peak hit in the previous session.
The report came as Alcoa Inc. reported earnings late Monday, in which it beat most profit estimates but missed revenue forecasts.
U.S. stock futures were lower. Dow Jones industrial futures fell 55 points, or 0.5 per cent, to 12,266.00. S&P 500 futures slipped 7.10 points, or 0.5 per cent, to 1,312.50 and Nasdaq futures fell to 2,297.25, down 10.75 points or 0.5 per cent.
Britain's FTSE 100 fell 0.8 per cent to 6,005.27. Germany's DAX was 0.8 per cent down to 7,150.11 while France's CAC-40 was 1 per cent lower to 3,996.63. Wall Street was also headed for a lower opening, with Dow Jones industrial futures down 60 points to 12,261 and S&P 500 futures slumping 8 points to 1,312.10.
Tokyo's Nikkei 225 index closed down 1.7 per cent at 9,555.26, on worries that prolonged power shortages would crimp output across regional supply chains and as exporters fell on a strengthening yen.
Taiwan, a key trading partner to Japan, saw its benchmark TAIEX slide 1.7 per cent, while South Korea's Kospi tumbled 1.6 per cent. Electronics and auto manufacturer stocks fell in both countries on supply chain worries. Hong Kong's Hang Seng index fell 1.4 per cent and Australia's S&P/ASX 200 slipped 1.5 per cent.
Japan's nuclear safety agency raised the severity of the Fukushima Dai-ichi nuclear plant incident to level 7, the highest on the scale and the same rating as the Chornobyl incident in 1986. The International Monetary Fund cut its forecast of Japan's economic growth to 1.4 per cent for the year, down 0.2 percentage points from its pre-quake outlook. It cited damage to factories, power outages and other disruptions from the March 11 quake and tsunami, which are believed to have killed more than 25,000 people.