Asian Stocks Slump As Oil Falls Below $36 Ahead Of Fed Meeting

Asian stocks slumped early Monday as oil extended its decline and two U.S. funds suspended redemptions just before the Federal Reserve is expected to raise interest rates for the first time in nine years this week. Japan's Nikkei 225 dropped 2.5 percent while the ASX 200 in commodity-dependent Australia fell 1.5 percent. Korea's KOSPI declined 1.1 percent while the STI in trade-dependent Singapore slipped 0.5 percent.

On Friday in the U.S., the Dow Jones Industrial Average fell 1.8 percent, the S&P 500 1.9 percent and the Nasdaq 100 2.3 percent.

West Texas Intermediate crude is now trading below $36 per barrel, having crossed $40 on Monday. On Friday, it fell for the sixth straight day since Saudi Arabia refused to cut production to boost prices at the meeting of the Organization of the Petroleum Exporting Countries. The decline, which started from above $100 per barrel in the middle of 2014, has forced oil companies to lay off workers and cancel expansion plans. This has hurt commodity and other businesses that supply the industry, raising questions about global growth.

This most recent drop comes just before the Federal Reserve meets on Tuesday and Wednesday, having sent strong signals that it will raise rates because the economy has recovered enough from the global financial crisis. At the end of last week too, a mutual fund and a hedge fund in the U.S. suspended redemptions, meaning investors couldn't take their money out, indicating investors wanted to cash out more than the funds were willing or able to raise by selling holdings in a weak market. The funds are managed by Third Avenue Management and Stone Lion Capital Partners.

“We’re coming up to the first U.S. rate hike in nine years and we have an environment in commodities where prices continue to decline," said Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney, as reported by Bloomberg. "The U.S. looks solid enough, but it’s still the weakest recovery in history, and we’ve got all of these stresses in the emerging markets.”

The Fed decision will be known Thursday morning in Asia.

"It's fair to say that equities are going to be truly tested over the coming four days, and the Fed will be a catalyst for volatility in the leadup to Thursday," said Evan Lucas, market strategist at IG in Melbourne, as reported by Reuters.