Asian Morning Briefing: U.S. Stocks Drop on Media Meltdown
New York (Aug 6) US stocks slumped Thursday in a selloff led by shares of media companies. U.S. Treasury bonds strengthened as a selloff in crude oil prices reduced inflation concerns. The dollar slipped modestly as few investors made large bets ahead of the U.S. employment report for July. Gold prices edged higher.
Lower prices for oil and other resources are hitting Japan’s top trading companies hard, partially undercutting the benefits of cheaper imports for this resource-poor nation.
Mitsui, the second-largest trading house after Mitsubishi by market capitalization, said Thursday it posted a 24% decline in net profit during the April-June quarter to ¥97 billion ($777 million).
“Falling resource prices due to weak demand in China are having an impact on our business like a body blow,” said Mitsui’s chief financial officer, Kengo Matsubara.
He said shrinking demand for infrastructure in China, where the real-estate market is cooling, has weighed on resource prices. “Unused steel materials in China are often exported to Southeast Asia, which also affects our business in the region,” he said.
Stocks slumped in a selloff led by shares of media companies, which have reported a flurry of disappointing earnings amid concerns about the shift away from traditional television.
A 14% decline in Viacom dragged down the Nasdaq Composite Index, which fell 83.50, or 1.62%, to 5056.44. Before the opening bell, the media giant reported a decline in second-quarter profit and revenue, fueling worries that more consumers are cutting the cable cord and turning to the Internet for their viewing.
Shares of Walt Disney tumbled for a second day after Chief Executive Robert Iger late Tuesday noted subscriber losses at ESPN.
That again weighed on the Dow Jones Industrial Average, which declined 120.72 points, or 0.69%, to 17419.75. The S&P 500 fell 16.28, or 0.78%, to 2083.56.
Disney was down 1.8% on Thursday after falling 9.2% Wednesday. 21st Century Fox declined 6.4% after lowering its expectations for full-year profit for fiscal 2016.
“Media stocks are getting slaughtered,” said Aaron Clark, a portfolio manager at GW&K Investment Management, which manages $25 billion in assets. “It’s been the long-running fear that we would eventually see cord-cutting. Everyone thought it would be a slow-moving train wreck, but Disney’s comment woke people up.”
China’s shares fell and bank shares pressured Australia on Thursday, but Japan’s market rose ahead of a key jobs report in the U.S. later this week.
The dollar slipped modestly against the euro and the yen, as few investors made large bets ahead of the U.S. employment report for July, which traders expect will provide clarity on interest rates and set the direction for the U.S. currency.
The dollar declined 0.2% against the common currency, as one euro bought $1.0929 in late-afternoon trade. The U.S. currency fell 0.1% versus the yen to Y124.72.
The Wall Street Journal Dollar Index, which compares the dollar against a group of 16 commonly traded currencies, ticked down 0.1% to 89.08 from 89.14 at Wednesday’s close, leaving it near the 12-year high it reached on March 13.
Investors have been betting the dollar will rise against other developed-market currencies, as the Federal Reserve moves closer to raising short-term interest rates for the first time in more than nine years. Many market participants say robust numbers for U.S. nonfarm payrolls, which will be released on Friday morning, will move the central bank closer to announcing tighter credit conditions at its September meeting.
Higher U.S. interest rates would boost returns on dollar-based assets, making the currency more attractive to investors.
On Thursday, though, most traders and money managers stuck to smaller trades, said Marc Chandler, global head of currencies at Brown Brothers Harriman.
“For dollar bulls, it’s a day to sit,” Mr. Chandler said. “Today might not be the best time to express one’s views ahead of the jobs data.”
U.S. Treasury bonds strengthened for the first time in three days as a selloff in crude oil prices reduced inflation concerns and boosted demand for high-grade fixed-income assets.
The price strength was moderate ahead of Friday’s U.S. employment report for July, which is expected to shed light on the timing of the Federal Reserve to raise benchmark interest rates.
Inflation is the main threat to the value of longer-dated bonds as it chips away at bonds’ fixed return over time. U.S. crude-oil prices fell Thursday and approached the lowest level since 2009. A measure of U.S. inflation expectation in the Treasury bond market dropped to the lowest level in nearly five months on Thursday.
“There is no inflation” to spook bond buyers, said Guy Haselmann, head of U.S. interest-rate strategy at Bank of Nova Scotia in New York. “The Fed wants to raise rates, but they could easily miss the ideal window of opportunity to do so” if oil prices keep falling, he said.
In late-afternoon trading, the yield on the benchmark 10-year Treasury note was 2.236%, near a two-month low, compared with 2.27% on Wednesday. Yields fall as prices rise.
Oil prices dropped toward six-year lows on concerns that the global crude glut will worsen when the U.S.’s busy summer-driving season comes to a close.
Prices have slid since the end of June as a result of high levels of crude production in the U.S. and other major suppliers, worries about weaker Chinese consumption and a strong dollar.
Traders are looking ahead to the fall, when gasoline demand typically declines as drivers take fewer vacations. That’s also when refineries buy less crude oil as they shut down units for repairs.
“You’re not seeing anything out there that is giving you respite,” said Ric Navy, senior vice president for energy futures at brokerage R.J. O’Brien & Associates. Despite robust global demand for fuel, especially gasoline, “supply is still outstripping it.”
Oil prices last hit six-year lows in March, the nadir of a historic selloff that brought prices down nearly 60% in nine months. Fueling the declines were rising production in the U.S. and a decision by the Organization of Petroleum-Exporting Countries to maintain output at relatively high levels.
Oil prices on Thursday fell 49 cents, or 1.1%, to $44.66 a barrel on the New York Mercantile Exchange, the lowest settlement since March 19. Prices are less than $2 a barrel above the six-year low of $43.46, reached on March 17.
Analysts and Wall Street banks called for lower prices in early 2015, only to be caught off-guard by oil rallying past $60 a barrel in the second quarter. Now, many of these analysts are taking a victory lap. Many market watchers said the price gains earlier in the year were driven by short-term investors, rather than by supply and demand, and that the rally wasn’t sustainable.
Brent, the global benchmark, fell 7 cents, or 0.1%, to $49.52 a barrel on ICE Futures Europe.
Gold prices edged higher, as investors locked in profits on bets against the precious metal ahead of U.S. employment data.