Global Stocks Drop as Oil Renews Selloff; Yen Strengthens

U.S. stocks led global equities lower for a third day, as a rout in energy producers spread to the broader market after oil sank to a five-year low. The yen strengthened with Treasuries as investors sought haven assets.
The Standard & Poor’s 500 Index dropped 1.6 percent, extending losses in afternoon trading as all 10 main groups slid at least 1 percent. West Texas Intermediate crude plunged 4.5 percent to settle at $60.94 a barrel, while Brent fell below $65 for the first time since 2009. The yield on 10-year Treasury (USGG10YR) notes dropped five basis points to 2.17 percent. The yen had its biggest three-day gain in more than a year. New Zealand’s dollar soared 1.7 percent at 5:34 p.m. in New York as the central bank said future interest-rate increases can be expected after holding borrowing costs steady today.
OPEC cut the forecast for how much crude it will need to provide in 2015 to the lowest level in 12 years amid surging U.S. shale supplies and lower demand estimates. U.S. crude inventories rose to the highest seasonal level in weekly data that started in 1982, the Energy Information Administration said. Energy shares in the S&P 500 tumbled 3.3 percent to the lowest since April 2013, while oil and gas producers led the slide in European equities and Canadian shares.

Photographer: Andrew Burton/Getty Images

A trader works on the floor of the New York Stock Exchange on Dec. 9, 2014.

“Oil dropping is creating uncertainty,” Paul Zemsky, the New York-based head of multi-asset strategies at Voya Investment Management LLC, which oversees $213 billion, said by phone. “People are trying to figure out what it means for other markets. The indirect impact should be beneficial as gasoline prices drop but that happens later. There’s fear before benefits here.”

OPEC Forecast

The S&P 500 has fallen 2.4 percent since closing at a record on Dec. 5. The gauge has advanced 9.6 percent in 2014, heading for a third year of gains, fueled by better-than-forecast economic data and corporate earnings.
Exxon Mobil Corp. and Chevron Corp. sank at least 2 percent today to lead declines among energy shares. Southwest Airlines Co. and United Continental Holdings Inc. rallied more than 1.8 percent as airlines advanced.
JPMorgan Chase & Co. plunged 2.8 percent after saying it will probably report a “high teens” percentage drop in fourth-quarter trading revenue from a year ago.
The MSCI All-Country World Index dropped 1.2 percent for a third day of losses. It was the biggest retreat since Oct. 10 and the lowest level since Oct. 30. Canada’s S&P/TSX Index (SPTSX) fell 2.4 percent for its weakest since February.

Photographer: Martin Leissl/

European stocks rose for the first time in three days.

The Organization of Petroleum Exporting Countries lowered its projection for 2015 by about 300,000 barrels a day, to 28.9 million a day. Prices now are below what 10 out of OPEC’s 12 members need for their annual budgets to break even, according to data compiled by Bloomberg. Kuwait and Qatar are the exceptions.

No Reason

“I can see no news that would give any reason to buy oil at the moment,” Christopher Bellew, senior broker at Jefferies International Ltd. in London, said by e-mail.
A measure of risk in the U.S. junk-bond market rose the most in two months. The Markit CDX North American High Yield Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, climbed 14.9 basis points to 371 basis points at 4:01 p.m. in New York, according to data compiled by Bloomberg. The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves.
Copper led industrial metals lower, declining 1.2 percent to settle at $2.893 a pound in New York.

Emerging Markets

The MSCI Emerging Markets Index lost 0.7 percent to an eight-month low. Saudi Arabia’s benchmark Tadawul All Share Index slumped 2.5 percent as Brent crude slipped 3.9 percent to settle at $64.24 a barrel in London trading.
Oil and gas producers fell to a three year low for the biggest slide among 19 industry groups in the Stoxx 600. The broader index sank 2.3 percent yesterday.
“Yesterday’s selloff was a bit overdone -- a good case of some selling panic hitting very low December volumes,” Michael Woischneck, who helps oversee the equivalent of $7.7 billion at Lampe Asset Management in Dusseldorf, Germany. “Investors were right to be concerned with the gamble of an early presidential election. But although it’s important for Greece, it’s not a game changer. Europe is steady enough to cope with whatever comes out of Greece.”

Europe Equities

Even after the biggest two-day slide in seven weeks, European stocks are not far from recent highs. The Stoxx 600 reached its highest level in almost seven years on Dec. 5, amid speculation that the European Central Bank will consider quantitative easing at its January meeting.
While most of the 18 western-European markets increased, Greece’s ASE fell 1 percent for a second day of declines, after losing 13 percent yesterday, the most since 1987.
The prospect of a snap parliamentary election has fueled speculation that an anti-austerity party may gain more power in domestic politics. Banks were the biggest drag on the index, with Eurobank Ergasias SA down 3.8 percent, Piraeus Bank SA losing 3.6 percent, and National Bank of Greece SA dropping 1.8 percent to its lowest price since at least 1992.
Greek securities extended losses into a third day, dragging down government bonds from the euro-area’s most-indebted nations and boosting demand for the safest fixed-income assets. The nation’s 10-year yield increased 39 basis points to 8.57 percent.

Bonds, Yen

Italy’s 10-year yield rose three basis points to 2.07 percent. The rate on German bunds fell to a record 0.678 percent before trading little changed at 0.681 percent.
The yen strengthened, capping its biggest three-day gain versus the dollar since August 2013. It jumped 1.5 percent to 117.98 per dollar, extending its three-day gain to 3 percent. Japan’s currency rose 0.9 percent to 146.82 per euro. The dollar dropped 0.6 percent to $1.2442 per euro.
The Shanghai Composite (SHCOMP) rallied as a 10-day measure of price swings jumped to the highest since September 2009. The gauge retreated from a 3 1/2-year high yesterday amid record turnover in China. Volatility in stocks has increased as investors assess the sustainability of a rally that topped every other market worldwide during the past month.

Dis-Inflation

The Hang Seng China Enterprises Index (HSCEI), which tracks mainland Chinese stocks listed in Hong Kong added 0.4 percent today after declining the most in three years yesterday.
Chinese producer prices slipped 2.7 percent in November from a year before, a 33rd straight decrease, while consumer inflation slowed to 1.4 percent, versus an estimate for 1.6 percent, reports today showed.
The rising risk of deflation increases pressure on the People’s Bank of China to follow up last month’s surprise interest-rate cut with further monetary easing, such as reducing banks reserve requirement ratios.
“China has entered into a rapid dis-inflation process, and faces the risk of deflation,” said Liu Li-Gang, the chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “As the PBOC has exhausted its newly invented and ineffective policy tools, we believe the next move will have to be a reserve ratio requirement cut in order to regain policy effectiveness and credibility.”
Russia’s ruble slid 1.4 percent to 54.8246 per dollar while the Micex Index gained 0.8 percent.
The yield on the 10-year bond fell for the first time in 12 days, retreating 19 basis points to 12.78 percent after reaching a five-year high yesterday. Yields have climbed this month on bets the Bank of Russia will take steps to curb a depreciation that has wiped out almost 40 percent of the ruble’s value this year.
Policy makers will probably increase the key rate to 10.5 percent from 9.5 percent when they meet tomorrow, according to the median estimate of economists surveyed by Bloomberg.