LONDON: Stocks chased crude prices on Tuesday, with Shanghai falling sharply as oil slumped in Asian trading, but a later rebound in the price for black gold sent equities higher in Europe and the United States.
"Oil prices continue to be the dominating driver of stock market direction," said market analyst Jasper Lawler at CMC Markets UK.
After dropping under $30 in Asian trading, crude futures were later back above the psychological threshold with solid daily gains of over 2 percent.
A six-percent-plus collapse for Shanghai's main stocks index led Asian markets lower. Tokyo's Nikkei lost 2.4 percent, while Hong Kong slumped 2.5 percent.
Shanghai's slump came despite the People's Bank of China pumping $67 billion into the money market to ease tight liquidity ahead of the Lunar New Year holiday.
"Some investors have no desire to continue fighting before the upcoming (Lunar) holiday, so the market is quite vulnerable to external factors," Zheshang Securities analyst Zhang Yanbing told AFP.
Markets had rebounded last week as the prospect of further stimulus measures by the European Central Bank and Bank of Japan, raising a glimmer of hope that the worst start to a trading year on record may be easing.
But analysts said the euphoria subsided in Asian trading Tuesday as the realisation set in that the oil market is far too oversupplied for its weak demand, and with China's economy continuing to struggle.
"A slump in Chinese stocks... and further weakness in crude oil has heightened concerns about global economic growth," said Manoj Ladwa, analyst at broker TJM.
- Lost control of destiny -
CMC Markets UK's Lawler said that "while oil prices remain volatile, stock markets appear to have lost control of their own destiny."
He said that could change however after the US Federal Reserve announces its latest interest rate decision on Wednesday. Fed Reserve members began their two-day meeting on Tuesday.
The Fed's last meeting in December saw it lift interest rates for the first time in almost a decade, citing confidence that the US and global economies were picking up.
But a lot has happened since.
"The global sell-off, continued commodity rout and Chinese slowdown are all going to concern the Fed and could leave the door open to a rethink on the date of the next rate hike," said James Hughes, chief market analyst at GKFX trading group.
Lawler said "should the Fed choose to reel back its own hawkish stance, any resulting drop in the dollar could support commodity markets and help put a floor under equities."
Wall Street also had some positive earnings reports to take a lead from, like a 35 percent jump in quarterly earnings by consumer products giant Proctor and Gamble despite the strong dollar. The company's shares shot up 5.4 percent in midday trading.
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