Global Markets Overview – December 1, 2014

People work at the West Qurna oilfield in southern Basra October 13, 2014. Oil prices are hovering just above $90 per barrel, a level last seen in June 2012, putting a strong spotlight on OPEC producing countries. They face calls to cut output at, or before, a policy meeting in late November to prop prices up as some are already feeling the pinch of sub-$100 oil through increased budget pressure. Global oil prices are collectively reflecting the sweeping impact of a U.S. shale oil boom, with its production consistently outstripping growth forecasts. REUTERS/Essam Al-Sudani (IRAQ - Tags - Tags: BUSINESS ENERGY)

US investors came back to from Thanksgiving on Friday and gave oil a mauling on the back of OPEC nations' inaction on Thursday.

WTI crude fell 10.23% (it's lost 35% since the June high) on Friday night and NYMEX natural gas fell 6.13% (both January contracts). Brent price have fell 3.7% but is down 37.6% since the June highs. This directly affects Asian nations because of the oil contracts Asia uses.

What is happening in oil is more than just a bear market - this is now becoming financially crippling for the nations involved.

The Saudis, for example, are currently liberalising their market to allow foreigners access to the SASEIDX, which has been in freefall. The index lost 6.3% at the bottom of the intraday trade on Friday before settling down 4.7%. In the past three months (basically since the foreign embargo was lifted), the SASEIDX has lost 23%. Friday's trade saw the index officially enter a bear market.

The mauling at the index level isn't going to stop there either. The Middle Eastern nation has US$500 billion of government contracts in the pipeline. The fall in the oil price will have two effects: either the Saudi Arabian government will experience a deficit as the falls in oil will significantly reduce government royalties, or the contracts will remain idle, meaning less infrastructure spending and lower levels of wealth for its inhabitants.

As OPEC's largest producer, it has the power to change course. However, that looks unlikely based on the talk from Vienna. The question now is the effect the price will have on weaker oil providing nations - Libya and Iraq are particularly vulnerable here.

Moving away from the OPEC nations, Canada and Norway will also begin to feel the pinch as margins enter the red zone sooner. The NOK is already feeling the heat from the fall and will continue to slide as the oil price falls.

The long-term effects of this slide are yet to be fully seen at a national level. However, one thing is clear - the oil price will take several years to recover the losses we've seen over the past three months. The macro backdrop suggests this recovery will be disjointed as national agendas blur any chance of a collaborative response. This will distort government and corporate earnings.

Ahead of the Australian open

The ASX is now pushing against the strong technical support level around 5290. There is a real chance this will be broken today as the energy and material plays continue to be savaged. BHP's ADR is suggesting it could fall through $30. With iron ore and oil in bear markets, it's not hard to understand why investors are deserting the world's largest miner.

The energy plays saw massive losses on Friday and that looks unlikely to slow today. All are heavily oversold and will see the odd bounce in the coming week. I don't think this will come today, however. The fundamentals have been completely drowned out in this space and are unlikely to surface until the New Year, so be aware the likes of STO and OSH are probably in for further hits.

Based on the Saturday futures, we are calling the ASX down 23 points to 5290 - right on the support level. Iron ore did spike up on Friday and may give some respite but is unlikely to really support the general market sell-off. Santa doesn't look like he will be joining us in 2014.

Asian markets opening call	Price at 8:00am AEDT	Change from the Offical market close	Percentage Change
Australia 200 cash (ASX 200)	5,290.00	-23	-0.43%
Japan 225 (Nikkei)	17,424.90	176	1.02%
Hong Kong HS 50 cash (Hang Seng)	23,927.80	-60	-0.25%
China H-shares cash	11,104.50	-41	-0.37%
Singapore Blue Chip cash (MSCI Singapore)	377.90	0	0.03%
US and Europe Market Calls	Price at 8:00am AEDT	Change Since Australian Market Close	Percentage Change
WALL STREET (cash) (Dow)	17,786.80	-54	-0.30%
US 500 (cash) (S&P)	2,063.48	-10	-0.52%
UK FTSE (cash)	6,704.60	-13	-0.20%
German DAX (cash)	9,943.20	-29	-0.29%
Futures Markets	Price at 8:00am AEDT	Change Since Australian Market Close	Percentage Change
Dow Jones Futures (December)	17,807.50	-19.00	-0.11%
S&P Futures (December)	2,066.75	-6.13	-0.30%
ASX SPI Futures (December)	5,294.00	-46.00	-0.89%
NKY 225 Futures (December)	17,490.00	37.50	0.21%
Key inputs for the upcoming Australian trading session (Change are from 16:00 AEDT)	Price at 8:00am AEDT	Change Since Australian Market Close	Percentage Change
AUD/USD	$0.8468	-0.0020	-0.23%
USD/JPY	¥118.670	0.375	0.32%
Rio Tinto Plc (London)	£30.03	-0.10	-0.32%
BHP Billiton Plc (London)	£15.40	-0.27	-1.72%
BHP Billiton Ltd. ADR (US) (AUD)	$30.49	-0.51	-1.65%
Gold (spot)	$1,167.35	-17.10	-1.44%
Iron Ore (62%Fe Qingdao)	$71.82	2.84	4.12%