Oil/markets: 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, US data suggesting another slowdown and Europe running at two speeds, more volatile trading may be the logical response.
US WTI oil futures fell 10 per cent to $99 a barrel. And after a rollicking start to the year, silver has dropped nearly 30 per cent this week, its worst run since the 1980s. Other markets moved in sympathy, with the S&P 500 Index slipping 1 per cent 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 US 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 US 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.