Global Stocks Fall as Oil Trades Near Four-Year Low
London (Nov 28) Shares of energy producers led global equities lower after oil tumbled to a four-year low on OPEC’s refusal to ease a supply glut. Bonds advanced, setting record-low yields from Japan to Germany, and the dollar gained.
The MSCI All-Country World Index fell 0.2 percent at 6:57 a.m. in New York as the Stoxx Europe 600 Index lost 0.5 percent. Total SA and Royal Dutch Shell Plc fell more than 2.5 percent as Brent crude headed for its biggest weekly decline since 2011, down 9.4 percent. Standard & Poor’s 500 Index futures dropped 0.2 percent as U.S. markets reopen after the Thanksgiving holiday. Japan’s two-year rates turned negative for the first time and Germany’s 10-year yield fell to 0.694 percent. The Bloomberg Dollar Spot Index climbed to a five-year high, while gold and silver fell for a third day.
The Organization of Petroleum Exporting Countries kept its production ceiling unchanged, underscoring the price war in the crude market and challenge to U.S. shale drillers. The rout in oil is damping inflation, with price growth slowing in Japan and Germany and already negative in Spain. A report today showed euro-area consumer prices slowed to 0.3 percent this month from a year earlier, as forecast by economists. European Central Bank President Mario Draghi signaled yesterday he is open to expanding asset purchases to stave off deflation.
“OPEC’s decision yesterday came as a surprise when looking at the market reaction and made investors more cautious,” said Tobias Britsch who helps oversee about $30 billion at Meriten Investment Management GmbH, in Dusseldorf, Germany. “This could hurt a year-end rally. I would not touch oil and gas stocks as it’s far too risky now. Lower energy prices could put some pressure on euro-area inflation, and the ECB might need to go for full QE.”
Brent rose 0.3 percent after sliding as much as 2 percent. West Texas Intermediate crude oil dropped 6.4 percent from its Nov. 26 close. The moves sent the Bloomberg Commodity Index (BCOM) down 2.1 percent, its biggest drop since June 2013. WTI has lost 30 percent this year, while Brent has plunged 34 percent.
The repercussions were felt through asset classes. Oil and gas producers in the MSCI All-Country World Index dropped for a fifth day, the longest streak in more than a month. That sent the gauge down 0.2 percent today, trimming its monthly gain to 1.7 percent. The MSCI Emerging Markets Index slid 0.5 percent, extending its November decline to 0.8 percent.
Europe’s Stoxx 600 slid for the first time in six days, falling from a two-month high. Energy producers declined the most among 19 industry groups, while airlines rallied. Air France-KLM Group and Deutsche Lufthansa AG climbed more than 3 percent. Tour operator TUI AG added 2.5 percent.
Today’s move trimmed the Stoxx 600 advance to 12 percent from a low in October. The gauge has rallied 2.7 percent this month, the most since February. Germany’s DAX Index (DAX) fell 0.3 percent after an 11-day gain sent it near its July record.
The cost of insuring corporate debt rose, with the Markit iTraxx Europe Index up one basis point, according to data compiled by Bloomberg. Credit-default swaps on Shell, Europe’s biggest oil company, were the worst performing in the benchmark gauge this month, climbing 35 percent to 46 basis points, followed by increases in Eni SpA, Statoil ASA and Total.
In the U.S., where markets were closed yesterday for the Thanksgiving holiday, S&P 500 futures indicated the index will slip from a record. It’s added 11 percent since a low in October and is heading for a 2.7 percent monthly gain. U.S. equity markets will shut at 1 p.m. New York time today.
Government securities advanced as tumbling oil prices cooled the outlook for inflation, preserving the value of fixed payments on bonds. Ten-year U.S. Treasuries, which didn’t trade yesterday, climbed for a sixth day, pushing yields down four basis points, or 0.04 percentage point, to 2.20 percent, hitting the lowest level in more than a month.
The rate on Japan’s two-year notes slid to as low as minus 0.005 percent, according to Japan Bond Trading Co. In Europe, Austrian, Belgian, Dutch, Finnish, French, Irish, Spanish, Italian and Portuguese yields all fell to records with those in Germany. Australian and British 10-year yields declined to 18-month lows.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.2 percent to its highest level on a closing basis since March 2009.
Currencies of commodity-producing nations were among the biggest losers against the dollar. Norway’s krone extended yesterday’s 1.4 percent slump, dropping 0.7 percent and touching 7.0151 per dollar, the weakest level since March 2009. Norway is the biggest oil producer in Western Europe.
Canada’s currency, known as the loonie, weakened 0.4 percent after sinking 0.7 percent yesterday. Australia’s dollar was down 0.3 percent to 85.20 U.S. cents.
Metals declined as lower oil prices added to concerns over deflation. Gold sank 0.8 percent to $1,183.46 an ounce, and silver dropped 1 percent to $16.09 an ounce. Copper slid 1.6 percent to $6,456 a metric ton as a strike at Peru’s Antamina mine, the world’s sixth-largest, was set to end. Prices are down 4 percent this week, the most since March.
The ruble weakened to a record low, down 1.9 percent to 49.60 per dollar. It extended this month’s slide to 13 percent, the most among 31 major peers. Russia’s currency has depreciated 34 percent this year as sanctions over Ukraine and the slump in oil price exacerbate an economic slowdown, leaving the country on the brink of recession.
Swaps on Russia’s sovereign debt rose for a fifth day, climbing 11 basis points to a more than three-year high.
In China, the Shanghai Composite Index capped its biggest weekly advance in four years, with today’s 2 percent gain leaving it 7.9 percent higher over five days. Stocks rallied amid speculation the central bank may continue to loosen monetary policy after cutting rates a week ago. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong added 1.2 percent today.