New York City, New York – (StockNewsDesk) – 12/13/2014 — The U.S. stock market saw its worst trading week in more than two and half years in the wake of plummeting crude oil prices and disappointing economic numbers from the Chinese economy. Falling crude oil prices and worsening economic numbers in the Chinese economy seems to have choked the global economic growth. In addition to this, according to U.S. Lawmakers, the value of assets may have increased enough to categorize it as over-valued. The over-valued assets might be a side-effect of stimulus measures started in 2008.
For the week, broader indices, such as S&P 500 and Dow Jones, have corrected more than 3.5%. The S&P 500 has come down from a high of 2060 to 2000 in a matter of days. Europe’s DAX has corrected more than 4.5% in a week; from 10,000 to 9600. India’s Nifty has corrected nearly 5% from 8600 to 8200. These are the effects of falling crude oil prices and worsening Chinese economic conditions. One of the barometers measuring volatility, the Chicago Board of Exchange Index, also known as VIX, increased nearly 5% to 21.08 from its low of 13.0 in a matter of one week.
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Plummeting Crude Oil Prices, Chinese Economic Numbers Responsible
Crude oil fell more than 4%, well below $60 a barrel, after the International Energy Agency (IEA) lowered its estimates of crude oil consumption for 2015 by 230,000 barrels per day (bpd) to 0.9 million bpd. Consumer Sentiment, however, was at its highest level in more than seven years, but negative sentiment seeped in with lower than expected producer price index. Consumer sentiment came in at 93.8, above expectations of 89.7 and November’s reading of 88.8. The producer price index declined 0.2% after rising 0.2% in October.
Crude oil prices have fallen because of three main reasons. Firstly, the ongoing competition of acquiring market share in the crude oil segment between U.S shale business and Saudi Arabia has triggered competitive pricing, prompting the oil prices to fall. Secondly, the global economy is slowing down and, as a result, the demand of crude oil has contracted. Lastly, the Oil Producing Export Countries (OPEC) have declined to control the supply of crude oil to match the demand, and since demand is much less than supply, it’s causing the crude oil prices to freefall. Seeing these factors, both OPEC and IEA have reduced the forecast of crude oil consumption for 2015. Lower than expected Chinese economic numbers are equally responsible for fuelling the negative sentiment. Falling factory orders, manufacturing activity, increasing unemployment and the cooling housing sector has rattled the second largest economy in the world. These factors have caused the Gross Domestic Product (GDP) of the country to fall to its lowest level in more than two decades. With the prevailing conditions, the GDP might further fall to 7%. Investors are expecting further stimulus measures to boost the economy.
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I am a Seeking Alpha Writer. I studied economics in school, have worked in finance, and have been trading stock over 10 years. I am comfortable talking about macro-level material in terms of indexes as well as going into details about individual companies, depending on the scope of the topic. I am also familiar with both technical and fundamental analysis.
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